Microsoft is acquiring voice recognition company Nuance Communications as it competes with other cloud companies for a share of the healthcare market. It plans to buy the company for a total of $19.7 billion in an-all cash deal, including Nuance’s debt. The deal was priced at $56 per share, up 23% from Nuance’s closing price on Friday.
The deal will be Microsoft’s second-largest to date, behind its $26.2 billion acquisition of LinkedIn. It’s expected to expand Microsoft’s addressable market for healthcare to nearly $500 billion, while giving Nuance the opportunity to scale globally, Microsoft Executive Vice President of Cloud and AI Scott Guthrie said in an investor call on Monday.
It will also give Microsoft a leg up as it faces cloud competitors Google and Amazon, who are also striking deals with hospitals and expanding their reach into healthcare.
Nuance will become part of Microsoft’s cloud business, reporting to Guthrie. Nuance CEO Mark Benjamin will continue to lead the company.
“AI is technology’s most important priority, and healthcare is its most urgent application,” Microsoft CEO Satya Nadella said in a news release. “Together, with our partner ecosystem, we will put advanced AI solutions into the hands of professionals everywhere to drive better decision-making and create more meaningful connections, as we accelerate growth of Microsoft Cloud for Healthcare and Nuance.”
Burlington, Mass.-based Nuance develops speech-recognition tools, primarily for healthcare. For example, it is developing a system that pulls information from information from a physician’s conversation with a patient into a clinical note. Physicians can also use the voice-based system for patient consent, document signing, and medication orders.
The company claims its solutions are used by more than 10,000 U.S. hospitals.
The acquisition would build on a partnership between Nuance and Microsoft dating back to 2019, where they worked together to develop Nuance’s ambient clinical intelligence software.
That partnership evolved after the start of the pandemic. As patients shifted to telehealth visits in lieu of in-person visits, Nuance integrated with Microsoft Teams to support virtual consults, Benjamin said in an investor call.
“Few could have predicted the dramatic and permanent changes resulting from the last 12 months as the pandemic turbocharged many of the digital transformation trends already underway. While many of these, such as telehealth, are eliminating prior obstacles in care pathways, they are also simultaneously creating unintended new hurdles for care delivery and workflows and exacerbating clinician burnout, which is already at an all-time high,” he wrote in a blog post. “As a result, there is an incredible demand for digital platforms that reduce administrative burdens, ensure accurate documentation and financial integrity, open the digital front door, and improve the quality of life for healthcare professionals and the overall patient experience.”
Last year, Nuance brought in a total of $1.48 billion in revenue, a slight decrease from 2019. Its gross profit increased to $840 million.
Its largest segment, healthcare, brought in $915 million in revenue, down slightly from the prior year. The company is shifting clients from its lower-margin medical transcription and EHR implementation services to its higher-margin cloud-based solution, according to its most recent annual filing.
Microsoft expects the deal will be minimally dilutive in 2022, and become accretive in 2023.
The deal has been approved by both companies’ boards, but it must meet certain regulatory approvals and get the green light from Nuance’s shareholders. It’s expected to close by the end of the year.