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How Microsoft's (MSFT) Nuance Buyout Fits Its Business Strategy

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Microsoft (MSFT - Free Report) is almost set to acquire Nuance Communications after it received unconditional antitrust approval from European Commission last week, as reported by Reuters.

The regulatory body stated that Microsoft’s Nuance takeover is unlikely to lower competition in transcription software, enterprise communication and cloud services, along with PC operating systems’ markets within the European Economic Area, according to Reuters.

Nuance’s planned acquisition by Microsoft has already received approvals from the U.S. Department of Justice (June 2021) and the Australian Competition Commission (October 2021), added the report.

In April 2021, Microsoft had announced the takeover of Nuance for $19.7 billion (including Nuance’s net debt) in an all-cash deal. Back then, Microsoft announced that it was expecting the Nuance deal to close by the end of 2021. Now, the deal closure time line is likely to extend into 2022.

 

How Will Nuance Buyout Aid Microsoft?

The planned takeover of Nuance is likely to bolster Microsoft’s position in the lucrative healthcare domain. The software giant noted that the Nuance takeover is anticipated to increase the company’s total addressable market or TAM in the healthcare space to $500 billion.

Nuance Communication offers pioneering conversational Artificial Intelligence (AI) tools to boost business productivity.

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

In the last reported quarter, Nuance delivered non-GAAP revenues of $333.1 million, up 8.3% on a year-over-year basis driven by strength in the Dragon Medical and DAX offerings. Non-GAAP earnings per share came in at 9 cents, down 35.7% year over year.

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

Last year, Microsoft combined its Teams App workflows with the Nuance DAX solution. The integration will enable a seamless physician-patient conversation. DAX is built on Microsoft’s Azure along with Nuance’s Dragon Medical platform.

Not just Microsoft, the revenue potential in the healthcare vertical has attracted other tech giants into the space.

Last week, Oracle (ORCL - Free Report) announced its intent to takeover Cerner Corporation in an all-cash transaction amounting to $28.3 billion or $95 per share to boost its position  in the healthcare vertical. The company cited that the sector was worth $3.8 trillion in the United States alone in 2020.

Cerner offers software and hardware solutions that give healthcare providers secure access to clinical, administrative and financial data in a short time. The company continues to benefit from electronic health record (EHR), electronic patient record (EPR) or electronic medical record (EMR) platforms.

The Cerner acquisition, if cleared of regulatory hurdles, would be the biggest ever for Oracle. Some of Oracle’s most notable acquisitions in the last two decades include NetSuite (for $9.3 billion in 2016), MICROS System ($5.3 billion in 2014) and Sun Microsystems ($7.4 billion in 2010).

Microsoft currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 (Strong Buy) Rank stocks here.


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