Microsoft to Buy Nuance for $16 Billion to Focus on Health Care Tech
By acquiring a provider of artificial intelligence, the tech giant is hoping to bolster its offerings for the fast-growing field of medical computing.,
Microsoft said on Monday that it would buy Nuance Communications, a provider of artificial intelligence and speech-recognition software, for about $16 billion, as it pushes to expand its health care technology services.
In acquiring Nuance, whose products include Dragon medical transcription software, Microsoft is hoping to bolster its offerings for the fast-growing field of medical computing. The two companies have already worked together on ways to automate the process of transcribing doctors’ conversations with patients and integrating that information into patients’ medical records.
Microsoft said the acquisition doubles the size of the health care market where it competes, to almost $500 billion.
Nuance is also known for providing the speech recognition software behind Siri, Apple’s virtual assistant. In recent years, however, it has focused on creating and selling software focused on the medical field.
Under the terms of the deal, Microsoft will pay $56 a share in cash, up 23 percent from Nuance’s closing price on Friday. Including assumed debt, the transaction values Nuance at about $19.7 billion.
The deal is Microsoft’s biggest takeover since its 2015 acquisition of LinkedIn for $26.2 billion.
“Nuance provides the A.I. layer at the health care point of delivery and is a pioneer in the real-world application of enterprise A.I.,” Satya Nadella, Microsoft’s chief executive, said in a statement.
Microsoft and Nuance have been working together since 2019, but the acquisition signals that Microsoft has bigger ambitions for Nuance’s technology. Microsoft has been making large investments in industry-specific cloud technology, including health care, finance and retail.
When Microsoft buys a company, its executives typically believe they can leverage its technology better than the company it is buying can, a model that fits the Nuance deal, said Brad Reback, an analyst at the investment bank Stifel. That Nuance has proved itself in health care, with its technical and complex vocabulary, means Microsoft could introduce other types of businesses.
“Being able to solve that problem makes it that much easier to handle other industries’ terminology,” he said.
Microsoft’s profitable business means it has money to spend. It ended 2020 with $132 billion in cash, and has been actively looking for big deals to put that money to use. Some have come together, like the deal announced in September to spent $7.5 billion on buying ZeniMax Media, the parent company of gaming studios that make major titles like Doom and Quake.
But other potential acquisitions have not always panned out. Last year, it considered a blockbuster deal to buy TikTok, the viral social network, though that fell apart under White House meddling. It has also looked at buying Discord, a live chat community largely used by gamers, though the status of those talks is unclear.
Nuance was a pioneer in the field of speech recognition that led the market in the 1990s and 2000s and provided part of the underlying technology for Siri, the talking digital assistant that made its debut on the Apple iPhone in 2011. Licensing technology to Apple and other companies was a key part of its business.
But the field underwent a sea change in 2010, when a team of researchers at a Microsoft research lab outside Seattle built a new kind of speech recognition system using a method called “deep learning.” This method — which was far more effective than earlier technologies — rapidly spread across the industry, with companies like Microsoft, Google, and IBM rising to the fore.
This is the technology that now allows Siri, the Google Assistant and other digital assistants to recognize spoken words with near human-level accuracy. Companies like Microsoft and Google also sell the technology to other companies through what are called cloud computing services.
After this technological shift, Nuance revamped its own business, offering speech recognition and other technologies for specific markets, most notably health care. In acquiring the company, Microsoft gains an established set of customers as well as a wide array of speech and text data related to health care, which is often a vital part of building new systems.
“The deal gives Microsoft access to half a million doctors and some of the largest hospitals around the world,” said Dan Ives, managing director of equity research with Wedbush Securities.