Microsoft to Buy Nuance Communications for Nearly $20 Billion

After a report surfaced this past weekend that Microsoft was in advanced discussions to purchase Nuance Communications for about $16 billion, the tech giant announced on Monday that it would be happening.

Microsoft will be buying the software company that focuses on speech recognition through artificial intelligence, in an all-cash transaction valued at $19.7 billion. This is including debt assumption.

The purchase will be Microsoft’s largest acquisition since its purchase of LinkedIn back in 2016 for a staggering $26.2 billion.

Massachusetts-based Nuance makes money by selling software tools that help to transcribe speech. The company had powered the speech recognition engine behind Apple’s voice assistant, Siri.

Microsoft first approached Nuance in December said a source familiar with the situation to CNBC. The person had said that the company was willing to pay about $56 per share for Nuance. That number would have given Nuance an equity value of about $16 billion.

Nuance would be more aligned with the part of Microsoft’s business that serves businesses and governments. With Nuance, Microsoft will also be able to further build out its Microsoft Cloud for Healthcare service.

Nuance had reported $7 million in net income on about $346 million in revenue in the fourth quarter. The company had already partnered with Microsoft in 2019 to bring artificial intelligence (AI) to doctor’s visits.

“I think this is one of many steps that Microsoft needs to take to solidify their business in the health care market,” Jefferies analyst Brent Thill said to Yahoo Finance. “Obviously, Amazon is making a push into the industry as well, and I think everyone is going after the golden ticket of health care.”

“This is to some extent a customer acquisition story,” said Forrester vice president and principal analyst J.P. Gownder. “Nuance’s strong position in the health care vertical means Microsoft is buying a customer base as much as anything else.”

Wedbush analyst Dan Ives, DAX has the potential to be a goldmine for Microsoft. “From a valuation [some of the parts] perspective, we believe over time the DAX business alone could be worth between $3 billion to $4 billion to [Nuance’s] valuation that [Microsoft] recognizes front and center, as this AI next generation platform represents a potential paradigm changer for hospitals/health care clinics/specialists over the coming years,” he said.

Disclaimer: We have no position in any of the companies mentioned and have not been compensated for this article.