Microsoft makes its biggest acquisition since LinkedIn - TechCentral

Microsoft makes its biggest acquisition since LinkedIn

Microsoft is buying speech technology company Nuance Communications in an all-cash deal valued at US$19.7-billion, making a massive bet on health care artificial intelligence.

The software giant is offering to purchase Nuance at $56/share, a 23% premium to Friday’s close, according to a statement on Monday. The deal marks Microsoft’s largest acquisition since LinkedIn.

Microsoft is tapping the company tied to the Siri voice technology to develop solutions that free doctors from note-taking and better predict a patient’s needs. It has been working with Nuance for two years on AI software that helps clinicians capture patient discussions and integrate them into electronic health records, and combining the speech technology company’s products into its Teams chat app for telehealth appointments.

The “Nuance deal is a trophy for Redmond”, said Wedbush analyst Dan Ives, referring to Redmond, Washington-based Microsoft. “Nuance is in the midst of an unprecedented strategic turnaround the last few years under the leadership of CEO Mark Benjamin and we believe the company represents a unique asset on the health-care front for Microsoft.”

Narrowed focus

Under Benjamin, Nuance has narrowed its focus and separated peripheral businesses, such as Cerence, the automotive AI unit that was spun off two years ago. It also sold its imaging division to Thoma Bravo’s Kofax for $400-million and zoomed in instead on partnerships with health-care providers and the biggest electronic medical records companies.

Nuance’s shares have climbed 3.4% this year, giving the company, which laid the groundwork for the technology used in Apple’s Siri, an almost $13-billion market value. The gain still trailed the 9.9% jump in the S&P 500 Index, while Microsoft added 15%.

As AI software gets better at parsing language and predicting medical needs, Nuance and Microsoft may be able to develop technology that searches for certain words in health records to make better suggestions to doctors for patient care.

“This can really help Microsoft accelerate the digitisation of the health-care industry, which has lagged other sectors such as retail and banking,” said Anurag Rana, a Bloomberg Intelligence senior analyst. “The biggest near-term benefit that I can see is in the area of telehealth, where Nuance transcription product is currently being used with Microsoft Teams.”

Nuance, whose products include Dragon speech-recognition software, had net income of $91-million on revenue of $1.48-billion for its fiscal year ending 30 September, after losing $217-million the previous year.

Microsoft has also been increasingly focused on healthcare. In May, the software maker unveiled a package of industry-specific cloud software, and has also hired executives with medical backgrounds and researching machine learning and AI tools for areas including clinical trials.

Coincidentally, one of Microsoft’s Boston area offices is located right next to Nuance’s headquarters.

With a market value of $1.93-trillion, the most in the world after Apple, Microsoft remains active on the deals front. Last month, it was revealed that the software giant was in talks to acquire Discord, a videogame chat community, for more than $10-billion. It also bought videogame maker Zenimax Media for $7.5-billion in cash in a deal that closed this year.

Second largest

The Nuance purchase ranks as Microsoft’s second largest acquisition, behind the 2016 LinkedIn purchase at an equity value of more than $26-billion.

Microsoft entered the AI space decades ago with research projects and an early focus by co-founder Bill Gates on finding ways to make it easier for people to speak to computers using plain English.

The Nuance purchase will complement efforts in recent years, where Microsoft has assigned thousands of employees to its AI work and released tools customers can use to build applications that understand and translate speech, recognise images and detect anomalies. The company views AI as a key driver of future sales of cloud services.

The acquisition may also give Microsoft a boost as it faces fierce competition in the AI space with rivals such as Google and Amazon.com also investing heavily in the field.  — Reported by Dina Bass, Liana Baker and Kiel Porter, (c) 2021 Bloomberg LP

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