Microsoft (MSFT) will buy speech-recognition pioneer Nuance Communications (NUAN) for $19.6 billion in cash. The move will speed Microsoft’s ambitions in the healthcare digital record keeping market. Microsofts goal is to use voice recognition technology to develop products that feee doctors from note-taking and allows more effective search of those notes for meaningful treatment solutions. The offer at $56 a share was a premium of 23% to the close for Nuance’s shares on Friday, April 9. Microsoft forecasts that the acquisition will result in a loss than 1% hit to earnings in the fiscal year that begins on July 1 and will add to earnings in the following year.
Microsoft has been working with Nuance for two years on AI software to helps clinicians capture patient discussions and integrate them into electronic health records. Microsoft has combined Nuance’s speech recognition technology into the company’s Teams chat app for telehealth appointments.
Nuance itself, whose products include Dragon speech-recognition software, has been in the midst of a strategic turnaround during the last to years under CEO Mark Benjamin. The company has narrowed its focus and spun off separated peripheral businesses, such as Cerence, its automotive AI unit. It also sold its imaging division.
Microsoft has targeted the healthcare sector as a major growth opportunity for cloud-based software. Which, of course, pits Microsoft against Amazon (AMZN). That company has pushed to sell its cloud-computer services and Alexa voice software to healthcare companies.
Nuance already partners with large electronic medical records companies such as like Cerner (CERN). Microsoft plans to continue those partnerships, the company said. The goal is “absolutely not” to try to replace those companies. Shares of Cerner closed up 0.61% today.
The Nuance acquisition would be Microsoft’s second largest after the 2016 acquisition of LinedIn for $26 billion. Microsoft had more than $130 billion in cash and short-term investments at the close of 2020.
In March Bloomberg reported that Microsoft was in talks to acquire Discord, a video-game chat community, for more than $10 billion. The company also bought video-game maker Zenimax Media for $7.5 billion in cash in a deal that closed in 2021.
I’d note that with stocks at record highs cautious acquisition targets might give preference to deals in cash rather than in shares that might be worth less tomorrow.
Microsoft is a member of my Jubak Picks Portfolio. The shares are up 154.81% from my June 14, 2018 pick as of the close on April 12.
Microsoft is scheduled to report earnings on May 5. Wall Street analysts project that the company will report earnings of $1.76 a share for the quarter versus $1.40 for the quarter a year ago.