Microsoft Acquires AI Company Nuance in Massive $19.7B Deal

Microsoft announced on Monday, April 12 that it has entered into a definitive agreement under which the technology giant will acquire artificial intelligence company Nuance in an all-cash transaction valued at $19.7 billion.

Per the deal’s terms, Microsoft will acquire Nuance for $56 per share, implying a 23 percent premium to the closing price of Nuance on Friday, April 9. The $19.7 billion valuation is inclusive of Nuance’s net debt, giving Nuance an equity value of about $16 billion.

CNBC and Bloomberg first reported on Sunday that Microsoft was in advanced talks to acquire the Burlington, Mass.-based Nuance, which is primarily known for its speech recognition software. Microsoft then issued a press release itself on Monday morning confirming the transaction.

According to CNBC’s report, “The Nuance acquisition represents Microsoft’s largest acquisition since it bought LinkedIn for more than $26 billion in 2016. Nuance would be aligned with the part of Microsoft’s business that serves businesses and governments. Nuance derives revenue by selling tools for recognizing and transcribing speech in doctor’s visits, customer-service calls and voicemails.”

Nuance reported $7 million in net income on about $346 million in revenue in the fourth quarter of 2020, with revenue declining 4 percent on an annualized basis. Nuance was founded in 1992, and had 7,100 employees as of September 2020, CNBC’s report noted. In its announcement Monday, Microsoft said Nuance’s technology will be used to augment Microsoft’s cloud products for healthcare that were introduced last year.

Like most technology companies of its ilk, Microsoft has been making more moves into healthcare of late. It previously collaborated with Nuance in 2019, aiming to tackle an ongoing challenge in healthcare—reducing physician burnout often caused by IT. Nuance and Microsoft thus decided to partner to accelerate the delivery of ambient clinical intelligence (ACI) technologies designed to power the exam room of the future.

That Nuance-Microsoft partnership brought together technologies from both companies, including Nuance’s healthcare-optimized speech recognition and processing solutions such as its Dragon Medical platform already used by more than 500,000 physicians worldwide; advanced conversational AI for ambient clinical documentation and decision support; voice biometrics; and specialized ambient sensing hardware. On the Microsoft side, the company’s Azure, Azure AI and Project EmpowerMD Intelligent Scribe Service, backed with advanced conversational AI and natural language understanding, would be leveraged.

What’s more, back in 2018, Microsoft Healthcare announced the release of an open-source project, FHIR Server for Azure, to offer developers access to software that supports the exchange and management of data in the cloud via the FHIR specification. Earlier that year, the company tapped Josh Mandel, who previously led the health IT ecosystem work at Verily (Google Life Sciences), as Chief Architect. Mandel was also a research scientist in biomedical informatics at Harvard University and lead architect for SMART Health IT.

In its April 12 announcement, Microsoft called Nuance “a trusted cloud and AI software leader representing decades of accumulated healthcare and enterprise AI experience,” as well as “a pioneer and a leading provider of conversational AI and cloud-based ambient clinical intelligence for healthcare providers.” Officials noted that Nuance’s products include the Dragon Ambient eXperience (DAX), Dragon Medical One and PowerScribe One for radiology reporting—all clinical speech recognition SaaS offerings built on Microsoft Azure.

“Nuance’s solutions work seamlessly with core healthcare systems, including longstanding relationships with electronic health records (EHRs), to alleviate the burden of clinical documentation and empower providers to deliver better patient experiences,” officials stated. Nuance solutions are currently used by more than 55 percent of physicians and 75 percent of radiologists in the U.S., and used in 77 percent of U.S. hospitals. Nuance’s Healthcare Cloud revenue experienced 37 percent year-over-year growth in Nuance’s fiscal year 2020, they added.

In a blog post commenting on the announcement, Gregory Moore M.D., Ph.D., corporate vice president, Microsoft Health & Life Sciences, and who previously was a clinical IT executive at Geisinger, noted that three-quarters of physicians who use it report that Nuance DAX has improved the patient experience. Ninety percent of patients say their visit felt more like a personable conversation and 97 percent reported that their primary care doctor spent less time on the computer and more focused on them, he added. Overall, when doctors use DAX, it reduces wait times for patients by 50 percent compared to industry averages and increases the number of patients physicians can see in a day—by nearly 25 percent for cardiologists, for example, and nearly 30 percent for primary care physicians, Moore reported.

“By augmenting the Microsoft Cloud for Healthcare with Nuance’s solutions, as well as the benefit of Nuance’s expertise and relationships with EHR systems providers, Microsoft will be better able to empower healthcare providers through the power of ambient clinical intelligence and other Microsoft cloud services,” company officials asserted. What’s more, the acquisition will double Microsoft’s total addressable market (TAM) in the healthcare provider space, bringing the company’s TAM in healthcare to nearly $500 billion, they said.

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

Mark Benjamin will remain CEO of Nuance, reporting to Scott Guthrie, executive vice president of Cloud & AI at Microsoft. The transaction is intended to close this calendar year.

In a prepared statement, Benjamin said, “Over the past three years, Nuance has streamlined its portfolio to focus on the healthcare and enterprise AI segments, where there has been accelerated demand for advanced conversational AI and ambient solutions.” He added, “To seize this opportunity, we need the right platform to bring focus and global scale to our customers and partners to enable more personal, affordable and effective connections to people and care. The path forward is clearly with Microsoft— who brings intelligent cloud-based services at scale and who shares our passion for the ways technology can make a difference. At the same time, this combination offers a critical opportunity to deliver meaningful and certain value to our shareholders who have driven and supported us on this journey.”