Microsoft Corp. is buying voice technology company Nuance Communications Inc. in an all-cash deal valued at $ 19.7 billion, including debt, making a massive bet on artificial intelligence in healthcare.
The software giant is offering to buy Nuance at $ 56 a share, a 23% premium at Friday’s close, according to a statement released on Monday, which confirmed an earlier Bloomberg report. The deal marks Microsoft’s biggest acquisition since LinkedIn Corp. The deal will “minimize” profits for the year that begins July 1 and begin increasing profits the following year, Microsoft said.
Microsoft is using the voice technology company Siri to develop solutions that free doctors from note-taking and better anticipate a patient’s needs. He has been working with Nuance for two years on artificial intelligence software that helps clinicians capture patient discussions and integrate them into electronic health records, and combine the voice technology company’s products into its application of Teams chat for telehealth appointments.
“The Nuance deal would be a trophy for Redmond,” Wedbush analyst Dan Ives said, referring to Redmond, Wash., Based Microsoft before the deal was officially announced. “Nuance is in the midst of an unprecedented strategic turnaround in recent years under the leadership of CEO Mark Benjamin and we believe the company represents a unique asset on the healthcare front for Microsoft.”
Under Benjamin, Nuance reduced its scope and separated peripheral activities, such as Cerence Inc., the automotive artificial intelligence unit that was created two years ago. It also sold its imaging division to Thoma Bravo’s Kofax for $ 400 million, and instead focused on partnerships with healthcare providers and the largest electronic medical records companies.
Microsoft has tried to break into the healthcare industry, selling more cloud software to hospitals and doctors. As AI software better analyzes language and anticipates 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.
Nuance shares rose 3.4% this year on Friday, giving the company that laid the foundation for the technology used in Apple Inc.’s Siri to a market value of nearly $ 13 billion. The gain still lagged the 9.9% jump in the S&P 500, while Microsoft added 15%. Microsoft shares were little changed in pre-market trading on Monday, and Nuance was up 23%.
“It can really help Microsoft accelerate the digitization of the healthcare industry, which has lagged behind in other sectors such as retail and banking,” said Anurag Rana, senior analyst at Bloomberg Intelligence, before the announcement. “The biggest short-term benefit that I can see is in the area of telehealth, where the Nuance transcription product is currently used with Microsoft Teams.”
Nuance, whose products include Dragon speech recognition software, reported a net profit of $ 91 million on revenue of $ 1.48 billion for its fiscal year ending Sept. 30, after losing $ 217 million. dollars the previous year.
Microsoft is also increasingly focusing on healthcare. In May, the software maker unveiled a set of industry-specific cloud software and also hired executives with medical backgrounds looking for machine learning and AI tools in areas such as clinical trials.
Coincidentally, one of Microsoft’s offices in the Boston area is located right next to the Nuance headquarters.
With a market value of $ 1.93 trillion, the most in the world after Apple, Microsoft remains active on the transaction front.
Bloomberg News last month reported that the software giant was in talks to acquire Discord Inc., a video game chat community, for more than $ 10 billion. It also bought video game maker Zenimax Media Inc. for $ 7.5 billion in cash in a deal that closed this year.
The purchase of Nuance would be Microsoft’s second-largest acquisition, behind the purchase of LinkedIn in 2016 for a net worth of more than $ 26 billion, according to data compiled by Bloomberg.
Microsoft entered the artificial intelligence space decades ago with research projects and a first focus by co-founder Bill Gates on finding ways to make it easier to communicate with computers in plain English.
The purchase of Nuance will complement efforts in recent years, where Microsoft has assigned thousands of employees to its artificial intelligence work and released tools that customers can use to build apps that understand and translate speech, recognize images and detect anomalies. The company sees AI as a key driver of future cloud service sales.
The acquisition could also give Microsoft a boost as it faces stiff competition in the AI space with investing rivals such as Google and Amazon.com Inc. of Alphabet Inc. also massively in the field.
(Updates with the financial impact of the operation in the second paragraph)