Microsoft to acquire AI firm Nuance Communications for $19.7 billion in a healthcare push

Mircosoft Corp said it would acquire Nuance Communications Inc in an all-cash transaction worth $19.7 billion on Monday including debts and with a vast amount of artificial intelligence in healthcare.

The tech giant will acquire Nuance for $56.00 per share, implying a 23% premium to the closing price of Nuance on Friday, the company said.

The takeover is the second biggest of Microsoft under CEO Satya Nadella after the company invested about $26 billion in 2016 on LinkedIn Corp. a specialist network.

Nuance is a leader and a pioneering source in speech recognition and artificial intelligence technology for healthcare professionals. 

Currently, more than 55% of doctors and 75% of radiologists in the U.S. use nuance solutions in 77% of hospitals in the U.S. In the fiscal year, 2020 Nuance's Healthcare Cloud revenue grew 37% annually (ended September 2020).

Both firms, which in 2019 partnered to simplify the function of clinical administrative agencies.

Microsoft uses voice technologies from Siri to create applications that enable doctors to take notice freely and to help forecast the needs of a patient. For two years, the tech giant is working with Nuance on AI applications that assists physicians in capturing and incorporating patient conversations in electronic health reports.

“Nuance provides the AI layer at the healthcare point of delivery and is a pioneer in the real-world application of enterprise AI,” said Satya Nadella, CEO, Microsoft in a statement, adding “AI is technology’s most important priority, and healthcare is its most urgent application.”

The deal would double Microsoft’s total addressable market (TAM) in the area of health care providers, taking the company's TAM to almost $500 billion in health care.

Nuance's stock increased by 3.4% as of Friday. The boost was still a 9.9% jump, while Microsoft contributed 15% to the S&P 500 index. In pre-market trade on Monday, Microsoft shares changed little and Nuance grew 23 %.

Apple Inc.'s assistant Siri has been launched by Nuance setting a market cap of almost $13 billion. It also creates software for businesses including the automotive sector.

Mark Benjamin remains CEO, reports to Scott Guthrie, Microsoft's Cloud & AI Executive Vice President. The transaction is set to conclude this calendar year.

Upon closure, Microsoft plans to report financial information from Nuance in the Intelligent Cloud division of Microsoft.

Microsoft's exclusive financial adviser is Goldman Sachs & Co. LLC, while its legal advisor is Simpson Thacher & Bartlett LLP. Evercore serves as Nuance's sole financial adviser, while Paul, Weiss, Rifkind, Wharton & Garrison LLP acts as their legal advisor.