Microsoft announced Monday that it would buy Nuance Communications, a provider of artificial intelligence and speech recognition software, for approximately $ 16 billion to expand its healthcare technology services.
With the acquisition of Nuance, whose products include the Dragon transcription tool, Microsoft hopes to improve its offering for the rapidly growing field of medical computing. Nuance has an established customer base and a wide range of health care-related voice and text data that is often an integral part of building new systems.
Microsoft and Nuance have been working together since 2019, but the acquisition signals that Microsoft has greater ambitions for Nuance technology. Microsoft has made major investments in industry-specific cloud technologies, including healthcare, finance, and retail.
Microsoft said the acquisition would double the size of the healthcare market in which it competed to nearly $ 500 billion.
The deal is Microsoft’s largest acquisition since it acquired LinkedIn in 2015 for $ 26.2 billion.
“Nuance provides the AI layer at the point of delivery in healthcare and is a pioneer in the real-world application of enterprise AI,” said Satya Nadella, Microsoft executive director, in a statement.
Typically, when Microsoft buys a company, its executives believe they can do more with the technology than the company it is buying, a model that fits the Nuance deal, said Brad Reback, an analyst at investment bank Stifel. Nuance’s proven track record in healthcare with its technical and complex vocabulary means Microsoft could adopt other types of businesses.
“Being able to solve this problem makes it a lot easier to use terminology from other industries,” said Reback.
Nuance’s tools are also mainly used in the United States. Selling to a global powerhouse like Microsoft allows the company to sell internationally much faster. “We saw the opportunity to transcend how we transform an industry,” said Mark Benjamin, Nuance CEO, in an interview.
Microsoft’s profitable business means it has money to spend. It ended up with $ 132 billion in cash in 2020 and was looking for big deals to take advantage of that money. In September, a deal was announced to spend $ 7.5 billion on ZeniMax Media, the parent company of game studios that make big titles like Doom and Quake.
However, other potential acquisitions were not always planned. Last year, a blockbuster offer to buy TikTok, the viral social network, turned into a political soap opera and fell apart. Microsoft has also considered buying Discord, a live chat community primarily used by gamers, although the status of these conversations is unclear.
In business today
April 12, 2021, 10:12 p.m. ET
Under the agreement, Microsoft will pay $ 56 per share in cash, up 23 percent from Nuance’s closing price on Friday – a total of around $ 16 billion. Including the assumed debt, the transaction is valued at Nuance at approximately $ 19.7 billion.
Nuance was a pioneer in speech recognition. It led the market in the 1990s and 2000s, providing some of the underlying technology for Siri, the talking digital assistant that debuted on the Apple iPhone in 2011. Licensing technology for Apple and other companies was an integral part of his business.
Li Deng, who headed speech recognition research at Microsoft for nearly two decades, said in an email interview that he asked his bosses to take over Nuance in 1999, but Microsoft shrank because the price was too high.
Speech recognition changed radically in 2010 when a team of researchers at a Microsoft research lab outside Seattle built a new type of speech recognition system using a method called deep learning. Far more effective than previous technologies, this method quickly spread throughout the industry, with companies like Microsoft, Google, and IBM in the foreground.
This technology enables Siri, Google Assistant, and other digital assistants to recognize spoken words with near-human accuracy. Companies such as Microsoft and Google also sell the technology to other companies via so-called cloud computing services.
Following this move, Nuance revamped its own business, offering speech recognition and other technologies for specific markets, particularly healthcare.
During a conference call with investors, Mr. Benjamin, Nuance’s chief executive officer, who will remain in the role after the acquisition, said his company’s healthcare business grew 37 percent over the past year and that he anticipates additional growth. According to Microsoft, Nuance technology has been used by more than 55 percent of physicians and 75 percent of radiologists in the United States and 77 percent of hospitals in the country.
“The deal gives Microsoft access to half a million doctors and some of the largest hospitals in the world,” said Dan Ives, managing director, equity research, Wedbush Securities.