Microsoft to acquire Nuance Communication for $20bn to advance cloud and AI services for its healthcare customers.

DEAL OVERVIEW

Acquirer: Microsoft
Target: Nuance Communication
Estimated value of merger: $19.7 billion
Date of transaction: Q4 2021
Financial advisor to Microsoft: Goldman Sachs & Co. LLC
Financial advisor to Nuance Communications: Evercore

On April 12th 2021, Microsoft Corp and Nuance Communications announced they have entered into a definitive agreement under which Microsoft will acquire Nuance for $56.00 per share meaning a 23% premium to the closing price of Nuance in an all-cash transaction valued at $19.7bn.

Company details

Acquiring company: Microsoft
Microsoft Corporation is an American multinational technology corporation which produces computer software, electrical appliances, PCs etc. Its best-known software products are Microsoft Windows and Microsoft Office. Since the 1990s, it has increasingly diversified from the operating system market and has made a variety of corporate acquisitions, their largest being the acquisition of LinkedIn for $26.2bn in Dec 2016.

Credits: Microsoft

Headquarters: Redmond, Washington
No. of employees: 181,000
Market Cap: $2.32 trillion
EV: $2.26 trillion
LTM Revenue: $168.10 billion
LTM EBITDA: $81.60 billion
LTM EV/Revenue: 13.5x
LTM EV/EBITDA: 28.1x

Target company: Nuance Communications
Nuance is a pioneer and a leading provider of conversational AI and cloud-based clinical intelligence for healthcare providers. Nuance’s products include the Dragon Ambient eXperience, Dragon Medical One and PowerScribe One for radiology reporting, all of which are leading clinical speech recognition SaaS offerings built on Microsoft Azure. Nuance’s solutions are currently used by more than 55% of physicians and 75% of radiologists in the US. Nuance’s Healthcare Cloud revenue experienced 37% year-over-year growth in Nuance’s fiscal year 2020.

Headquarters: Burlington, Massachusetts
No. of employees: 8,809
Market Cap: $217.35 billion
EV: $18.11 trillion
LTM Revenue: $1.53 trillion
LTM EBITDA: $234 million
LTM EV/Revenue: 11.82x
LTM EV/EBITDA: 77.46x

RATIONALE

Microsoft’s acquisition of Nuance Communications builds upon the burgeoning existing relationship between the two firms that was announced in 2019. By implementing the Microsoft Cloud for Healthcare with Nuance’s solutions, as well as Nuance’s proficiency and relationship with Electronic Health Record systems providers, Microsoft will be able to better able to warrant healthcare providers through the power of unobtrusive clinical intelligence and other Microsoft cloud services. The acquisition is projected to double Microsoft’s total addressable market (TAM) in the healthcare industry, bringing the company’s TAM in to approximately $500bn.

“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.”

– Satya Nadella, CEO, Microsoft.

THREATS

Recently, there has been a significant push from big tech to enter the $3.6 trillion healthcare industry. Amazon is making ventures in the industry with the proposed launch of Amazon Pharmacy in November which is said to send most US customers their prescriptions medicine with no delivery fee. Reports also suggest that Amazon is looking to connect workers with primary care workers for both in-person and online visits through a programme called Amazon Care. Apple’s biggest health-focused project has been the continued investment and improvement of the Apple Watch that can measure useful metrics to assess the wearer’s health condition. Google also followed a similar venture with its $2.1bn acquisition of Fitbit earlier this year.

Data collected from:
“EV/EBITDA for Microsoft Corporation (MSFT)” – finbox.com
“EV/EBITDA for Nuance Communications, Inc. (NUAN)” – finbox.com

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