Microsoft Nears Deal to Acquire Nuance for $16 Billion

Microsoft recently announced its plans to buy an AI-based speech recognition company, Nuance Communication, for $16 billion. The mammoth tech company will pay $56 per share for the acquisition. The net amount for the deal after including debts comes to $19 billion. 

The two companies first partnered in 2019 to develop a solution for automating clinical administrative tasks. The deal represents Microsoft’s vision to maintain its leadership position in the tech sector. 

Investment in Growth Companies

Microsoft has been searching for growth-based tech companies. It has been in talks with TikTok to purchase its US division for $30 billion but the deal was cut short due to the US Government’s anti-China stance. The company is also in talks to buy a chat-based application, Discord, for $10 billion. 

Last month, Microsoft had bought gaming company Zenimax Media Inc. owner of video-game publisher Bethesda Software for $7.6 billion in cash. 

The planned buyout of Nuance is the largest acquisition of Microsoft since 2016 when it acquired LinkedIn for $26 billion. 

Microsoft shares were slightly up compared to a week ago trading at $259.50 on Thursday 15th April. Nuance Communications’ share price was $52.98 during the same period – up about 16.2 percent as compared to last week.  

Alignment of Business Strategies

Nuance Communications operations are aligned with Microsoft’s business goals regarding the health care and government sector. Nuance technologies will be used to create a more attractive value proposition for Microsoft’s cloud-based products that were launched in the previous years. 

Nuance revenue during Q4 2020 was about $346 million while the net income was $7 million. The company obtains most of the revenues from selling speech recognition software to the health care sector, voicemail, and customer service calls software. While revenues were declining by about 4 percent each year, they were high enough to make the company a target for a buyout. 

According to an interview on CNBC, CEO of Microsoft Satya Nadella revealed that the main reason for acquiring Nuance was its health care solutions. He said that there has been a ‘massive acceleration’ in digital transformation particularly in the health care sector. Digital tech according to Nadella will be key in the provider market. 

Nuance was established in 1992 and it has a total staff of about 7,100. The CEO of the company is Mark Benjamin who will reportedly remain in his position after the buyout. He will report to Scott Guthrie who is the head of the cloud and AI business segment of Microsoft. 

Nuance has been a pioneer in AI-based speech recognition technology. The company had helped Apple Inc. develop the virtual assistant Siri. It has sold off less profitable units and today focuses on the enterprise and health care AI segment. The company serves about 77 percent of the hospitals in the US providing them intelligent medical imaging, medical transcription, and speech recognition applications. 

With the acquisition of Nuance, Microsoft will ride the wave of digital transformation that is currently trending particularly in the health care sector in the US.

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