Microsoft confirmed on Monday that it had agreed to buy Nuance Communications in an all-cash deal valued at $19.6 billion. Microsoft is offering $56 a share, which is a 23% premium to Friday’s closing share price. The acquisition is Microsoft’s largest since it bought LinkedIn for $24 billion in 2016. Preliminary reviews from analysts have been generally positive.
Nuance specialises in conversational and artificial intelligence (AI) applications with a focus on healthcare. It is perhaps best known as being the voice recognition company behind Siri, Apple’s voice assistant. Nuance has successfully extended its voice recognition systems to reduce the administrative load on doctors by taking notes from doctor-patient conversations and integrating them into diagnostic tests, leaving the doctor free to focus on the patient and determine the best treatments.
Aspects of Nuance’s healthcare software have been developed in partnership with Microsoft, as have applications that combine Nuance’s voice recognition technology with Microsoft’s Teams conferencing application to drive remote telehealth appointments. Microsoft and Nuance know each other well.
The acquisition of Nuance accelerates Microsoft’s push into the healthcare sector. Last year, Microsoft announced Microsoft Cloud for Healthcare, aiming to sell more cloud software to hospitals and doctors. It has hired executives with medical backgrounds and introduced AI tools for areas including clinical trials.
All of these initiatives will help Microsoft drive revenues from Nuance’s existing 10,000 healthcare customers, including some of the biggest names in the sector such as Johns Hopkins, Cleveland Clinic and Athena Health.
These aspects of the transaction were emphasised by Microsoft CEO Satya Nadella who posted on Twitter that “AI is technology’s most important priority, and healthcare is its most urgent application. Together with @Nuancelnc, we will put advanced AI solutions into the hands of professionals to drive better decision-making and create more meaningful connections”.
Stock market analysts did not need much convincing. According to Wedbush Securities analyst Dan Ives, “The Nuance deal is a strategic no-brainer…it fits like a glove into its health care endeavours at a time in which hospitals and doctors are embracing next-generation AI capabilities“. Further advances in AI software should enhance the ability of Nuance’s voice recognition technology to improve suggestions to doctors for patient care based on searches for certain words in health records.
The healthcare sector may have driven the acquisition, but Microsoft could use Nuance’s technology in other areas such as its Teams software package or within Office 365 to offer voice recognition features to compete with Amazon’s Alexa or Apple’s Siri. The possibilities of generating significant synergies applying Nuance’s technology across Microsoft’s products and customers are quite endless.
Analysts were even comfortable with the price Microsoft agreed to pay. Anurag Rana, a software analyst with Bloomberg, is on record as saying that he believes “the valuation is sensible, given Nuance’s leadership in conversational AI and what Microsoft could do with its software assets.” Of greater interest to Anurag Rana and other analysts is what Microsoft will do next. Microsoft is acquisitive, having come close to buying social media platforms TikTok and Discord.
It is even said to have walked away from a potential deal to acquire Pinterest. Microsoft has the financial resources to push into social media, but its current strategic imperative seems to be to deploy its resources into the growing healthcare sector.
Even so, Microsoft could look at acquiring companies that focus on other specific industries like manufacturing or retail, in the same way, that Nuance focuses on healthcare, and bring the Nuance voice recognition technology and AI capabilities to those companies. That would be a really big win.
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