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Microsoft Seals Nuance Deal For US$19.7B

It’s a done deal; Microsoft has officially bought out voice recognition technology company Nuance Communications in an all-cash transaction that gives the company an equity value of US$16 billion (about A$21 billion).

Microsoft said the deal valued Nuance at US$19.7 billion (about A$25.8 billion) including net debt.

This makes it Microsoft’s second-largest acquisition, and it comes almost two years after partnering with Nuance on producing artificial intelligence systems intended for doctors’ administrative support.

Nuance, based in Burlington, Massachusetts, was one of the early developers of speech recognition AI. Its technology was used to power the voice responses in Apple’s virtual assistant, Siri.

Though its voice recognition systems are widely used across a range of industries, Nuance has recently been streamlining its business to refocus on growing a handful of markets. The company’s revenues shrank in each of the past two years, and it’s sold several business units, rebuilding primarily around cloud-based systems for hospitals and doctors.

Microsoft is a leader in the natural language processing AI that underpins such systems.

Inroads in healthcare have contributed to a rebound in Nuance shares, which have more than tripled from a low point in March last year, valuing it at about US$13 billion before the deal. Microsoft agreed to pay US$56 per share for the company, a 23 per cent premium to Friday’s closing price, giving an equity value of US$16 billion.

The acquisition will give Microsoft a way to sell to many new customers in healthcare, financial services and telecoms, among other industries. However, Nuance only made US$29 million in net income last year, after several years of losses, and its revenue has fallen more than a quarter since peaking above US$2 billion in 2018.

“AI is technology’s most important priority, and healthcare is its most urgent application,” Microsoft chief executive Satya Nadella wrote in a tweet announcing the deal.

Mark Benjamin will remain chief executive of Nuance and report to Scott Guthrie, executive vice-president of cloud and AI at Microsoft. The transaction is expected to close this year.

With the Nuance purchase, Microsoft’s aim is to strengthen its presence in medical computing field. In buying Nuance, which comes complete with an established customer base, and speech and text data related to health care, Microsoft is immediately set up with a vital part of building new systems.

Microsoft said the acquisition would double the size of the health care market where it competed, to almost US$500 billion.

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