Microsoft to buy Nuance in a $19.7B deal to expand healthcare AI, cloud capabilities

Microsoft plans to buy speech recognition company Nuance Communications for $19.7 billion to expand its reach into healthcare.

The software giant will buy Nuance for $56 per share, about 23% above its closing price Friday. The all-cash deal is worth about $16 billion and about $19 billion including debt.

It's Microsoft's second-largest acquisition, behind the $26.2 billion deal for LinkedIn in 2016.

Nuance, based in Burlington, Mass., is considered a pioneer in speech recognition and artificial intelligence technology used in healthcare. The company's technology is used by more than 55% of physicians and 75% of radiologists in the U.S., and used in 77% of U.S. hospitals, according to the company in a press release.

The company saw revenue for its healthcare cloud business grow 37% year-over-year in its fiscal year 2020.

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

RELATED: Microsoft, Nuance developing ambient and AI technology to tackle doctors' documentation headaches

“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 at Microsoft 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 in Healthcare and Nuance.”

Microsoft and Nuance have worked together for the past two years on artificial intelligence software that helps doctors record conversations with patients and integrate them into electronic health records. In 2019, the two companies announced they were collaborating to use ambient technology combined with AI, automation and cloud computing to create an exam room experience where the clinical documentation "writes itself."

There is a growing market of solutions using AI and voice technology to reduce the burden of time-consuming, manual clinical documentation for doctors. In February, Nuance acquired Saykara to help boost its capabilities in healthcare AI. The startup developed a voice-enabled mobile artificial intelligence assistant to automate physician charting.

Nuance’s products include the Dragon Ambient eXperience, Dragon Medical One and PowerScribe One for radiology reporting, which are all clinical speech recognition SaaS offerings built on Microsoft Azure. Nuance’s solutions work seamlessly with core healthcare systems, including longstanding relationships with EHRs, to alleviate the burden of clinical documentation and empower providers to deliver better patient experiences.

Microsoft, Google and Amazon Web Services are all pushing deeper into healthcare in a battle to provide cloud computing and data storage technology to hospitals and payers. In October, Microsoft announced its Cloud for Healthcare service that brings together existing services such as Microsoft Teams, Azure IoT and chatbots to help healthcare organizations manage operations.

RELATED: Amazon Web Services launches Transcribe Medical speech recognition service for clinicians

The planned acquisition of Nuance is the latest step in Microsoft’s industry-specific cloud strategy, the company said.

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, the companies said.

Microsoft claims the acquisition will double its total addressable market in the healthcare provider space, representing a nearly $500 billion market. 

Beyond healthcare, Nuance provides AI expertise and customer engagement solutions across interactive voice response (IVR), virtual assistants, and digital and biometric solutions. Microsoft plans to combine these capabilities with its cloud, including Azure, Teams, and Dynamics 365 technologies to deliver "next-generation customer engagement and security solutions."

“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,” Benjamin said.

RELATED: Nuance acquires Saykara to build out healthcare AI tools

“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," he said.

The transaction has been unanimously approved by the Boards of Directors of both Nuance and Microsoft. The deal is subject to approval by Nuance’s shareholders, the satisfaction of certain regulatory approvals, and other customary closing conditions.

Goldman Sachs & Co. LLC is acting as exclusive financial advisor to Microsoft, while Simpson Thacher & Bartlett LLP is acting as its legal advisor. Evercore is acting as exclusive financial advisor to Nuance, while Paul, Weiss, Rifkind, Wharton & Garrison LLP is acting as its legal advisor.