On Monday, Microsoft Corp. and Nuance Communications Inc., “a trusted cloud and AI software leader,” announced that they entered into a definitive agreement where Microsoft will acquire Nuance in a deal projected to close this year.
Pursuant to the agreement, Microsoft will acquire Nuance for $56.00 per share, in an all-cash transaction that is valued at $19.7 billion and includes Nuance’s debt; notably, the price per share “implies a 23% premium to the closing price of Nuance on Friday, April 9.” This deal is Microsoft’s second-largest after it acquired LinkedIn in 2016 for $26.2 billion.
The press release stated that Nuance has “decades of accumulated healthcare and enterprise AI experience” with its “leading clinical speech recognition SaaS offerings built on Microsoft Azure.” Nuance is best known for its Dragon software, which uses deep learning to transcribe speech and reportedly improves in accuracy over time as it adapts to a user’s voice. Microsoft asserted that it is “accelerat(ing) its efforts to provide industry-specific cloud offering to support customers and partners as they respond to disruption and new opportunities,” including the Microsoft Cloud for Healthcare.
For now, the focus of the companies will purportedly be on health care, as the two companies already have worked together since 2019 by using Nuance’s software to digitize health records for Microsoft’s clients. Now, by enhancing Microsoft Cloud Healthcare with Nuance’s various solutions, expertise and relationships with Electronic Health Records system providers, “Microsoft will be better able to empower healthcare providers through the power of ambient clinical intelligence and other Microsoft cloud services.” Microsoft proffered that this acquisition will double its “total addressable market (TAM) in the healthcare provider space, bringing the company’s TAM in healthcare to nearly $500 billion.”
However, Nuance also offers AI expertise and other solutions including “Interactive Voice Response …, virtual assistants, and digital and biometric solutions to companies,” which could be coupled with Microsoft’s Azure, Teams, and Dynamics 365.
“Nuance provides the AI layer at the healthcare point of delivery and is a pioneer in the real-world application of enterprise AI,” Microsoft CEO Satya Nadella said in the press release. “AI is technology’s most important priority, and healthcare is its most urgent application. Together, with our partner ecosystem, we will put advanced AI solutions into the hands of professionals everywhere to drive better decision-making and create more meaningful connections, as we accelerate growth of Microsoft Cloud for Healthcare and Nuance.”
The companies indicated that the transaction was unanimously approved by Nuance’s and Microsoft’s respective boards of directors. However, the deal is “subject to approval by Nuance’s shareholders, the satisfaction of certain regulatory approvals, and other customary closing conditions. Moreover, the companies stated that upon closing it is anticipated that Nuance’s financials will be reported as part of Microsoft’s Intelligent Cloud Segment. Additionally, “Microsoft expects the acquisition to be minimally dilutive (less than 1 percent) in fiscal year 2022 and to be accretive in fiscal year 2023 to non-GAAP earnings per share, based on the expected close timeframe. Non-GAAP excludes impact of purchase accounting adjustments, as well as integration and transaction related expenses. The acquisition will not impact the completion of existing share repurchase authorization.”
The announcement noted that Mark Benjamin will remain the CEO of Nuance and will report to Scott Guthrie, Microsoft’s executive vice president of Cloud & AI.
Goldman Sachs & Co. LLC is acting as exclusive financial advisor to Microsoft and Simpson Thacher & Bartlett LLP is acting as its legal advisor. For Nuance, Evercore is acting as exclusive financial advisor while Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as its legal advisor.