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Microsoft (MSFT) Set to Acquire Nuance Communications for $19.7B

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Microsoft (MSFT - Free Report) recently announced the acquisition of Nuance Communications for $19.7 billion (including Nuance’s net debt) in an all-cash deal. Microsoft will pay $56 per share to Nuance shareholders, which represents 23% premium to the stock’s closing price of $45.58 on Apr 9, 2021.

The acquisition has been approved by Boards of Directors of the companies and is expected to be concluded by the end of 2021. The deal is subject to Nuance’s shareholders’ approval as well as other regulatory and customary conditions.

The tech giant expects the buyout to be accretive to its fiscal 2023 non-GAAP earnings per share results but “minimally dilutive (less than 1 percent)” to its fiscal 2022 performance.

Post the acquisition, Nuance’s financial results will be reported under Microsoft’s Intelligent Cloud segment. Mark Benjamin will continue to be CEO for Nuance and will now report to executive vice president of Microsoft’s Cloud & AI segment, Scott Guthrie.

 

Nuance buyout marks one of the largest acquisitions for Microsoft. LinkedIn acquisition, at a price tag of $26.2 billion, remains one of the major acquisitions till date for the tech giant. Some other notable recent acquisitions include ZeniMax Media (2021) and GitHub (2018) for $7.5 billion each. 

How Nuance Buyout Benefits Microsoft?

The acquisition of Nuance Communications is expected to increase Microsoft’s total addressable market or TAM in healthcare vertical to $500 billion, noted the software giant.  Microsoft further added that Nuance solutions are leveraged by nearly 77% of hospitals as well as used by more than 55% of physicians and 75% of radiologists in the United States.

Headquartered in Burlington, MA, Nuance Communication specializes in offering innovative conversational Artificial Intelligence (AI) tools to boost business productivity.

The company’s healthcare delivery offerings, including Nuance electronic health record (EHR) services, Dragon Ambient eXperience (DAX), Dragon Medical Virtual Assistant, Dragon Medical One are expected to witness continued momentum amid the pandemic.

Nuance reported revenue growth of 37% year over year for its Healthcare Cloud segment for fiscal 2020 (ended Sep 30, 2020), added Microsoft.

Microsoft and Nuance already have partnership in place to innovate conversational AI and ambient intelligence technologies to augment physician-patient interaction. Both the companies are concentrating on enhancing healthcare delivery by transforming Nuance’s ambient clinical intelligence (ACI)  technology.

In 2020, Microsoft integrated its Teams App workflows with Nuance DAX solution. The integration will facilitate a seamless physician-patient conversation. Notably, DAX is built on Microsoft’s Azure along with Nuance’s Dragon Medical platform.

We believe that Microsoft’s purchase of Nuance, which is prominent player in the healthcare virtual assistants’ market owing to the ACI technology, strengthens its prospects in the healthcare domain.

Zacks Rank & Other Stocks to Consider

Microsoft currently carries a Zacks Rank #2 (Buy).

Some better-ranked stocks in the broader sector are Ubiquiti (UI - Free Report) , and Etsy (ETSY - Free Report) . Both the stocks flaunt a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Long-term earnings growth rate for Ubiquiti, and Etsy is currently pegged at 32.9%, and 25.3%, respectively.

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