The Why Behind Microsoft’s $19 Billion Nuance Buy

The week has kicked off with a much anticipated acquisition: Microsoft announced Monday (April 12) it will purchase speech recognition firm Nuance Communications for about $16 billion, or $56 share, 23 percent above its Friday closing price. Given that Microsoft will also be assuming Nuance’s debt, the value of the deal will total out around $19.7 billion.

Nuance is Microsoft’s largest acquisition since its 2016 purchase of LinkedIn for $26 billion — though one of a series of attempted or completed acquisitions for the growth-oriented Microsoft. The firm spent much of the late summer eyeing a TikTok purchase, though that effort ultimately derailed, and purchased gaming company Zenimax for $7.6 billion last month. It is also reportedly currently in talks to purchase the chat app Discord for an estimated $10 billion.

Microsoft’s checkbook is out, and it’s ready to buy. And Nuance isn’t exactly new to the MS infrastructure — the two firms announced a partnership last fall to leverage technology to gather medical patient data through artificial intelligence (AI) to give doctors more time to focus on patient care.

“Our strategic partnership with Microsoft, which led to this rapid integration of Nuance DAX with Microsoft Teams for telehealth, illustrates the ongoing importance of combining our technologies, domain expertise and market reach to develop advanced cloud-based conversational AI solutions that keep the health of clinicians and patients front and center in healthcare delivery,” Diana Nole, executive vice president and general manager of healthcare with Nuance, said of the partnership at the time it was announced.

Nuance will enter the part of Microsoft’s business that serves businesses and governments and its technology will be incorporated into Microsoft’s healthcare cloud products, which were first announced in 2020.

“Nuance provides the AI layer at the healthcare point of delivery,” Microsoft CEO Satya Nadella said in a statement, adding, “AI is technology’s most important priority, and healthcare is its most urgent application.”

Prior to this acquisition, Nuance was likely best known for being the firm providing the speech recognition software behind Siri, Apple’s virtual assistant. In recent years, however, it has increasingly moved to focus on creating and selling medical software. That includes its Dragon medical transcription software that was the focus of Nuance’s partnership with Microsoft last fall around automating the process of transcribing doctors’ conversations with patients and integrating that information into patients’ medical records. It has long been considered by market watchers as a prime contender for acquisition by a bigger tech player, with Apple and Microsoft being the favored top two choices as buyers. Nuance has a strong reputation for its voice recognition technology, and though Microsoft already has voice recognition built into many of its products, it has recently shut down some products featuring its voice assistant Cortana as a potential upgrade recreation of its voice products is now widely considered as on the table.

Nuance reported $7 million in net income on about $346 million in revenue in Q4 2020, with revenue declining 4 percent on an annualized basis. Founded in 1992, the firm had roughly 7,100 employees as of September. Microsoft has said Nuance CEO Mark Benjamin will remain at the company and will report to Scott Guthrie, who is in charge of Microsoft’s cloud and artificial intelligence businesses.

The market, it seem, likes this news. Nuance saw its stock price increase by 21 percent Monday on the announcement of its forthcoming deal with Microsoft, while Microsoft’s stock price has mostly remained steady during trading Monday.

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