by Jim Lundy and Craig Kennedy
Microsoft is buying Nuance, a conversational AI and cloud-based healthcare clinical intelligence provider, in an all cash deal for $19.7 Billion. This represents a 13.3x multiple, as Nuance’s revenues for 2020 were $1.48 Billion. This blog analyzes the key aspects of the deal.
Microsoft Gets Nuance—The Engine Behind Apple Siri
While Apple has never confirmed what is actually behind Apple Siri, Nuance did confirm it helped Apple with Siri back in 2013. We don’t think that this deal will impact Apple at all.
Microsoft’s purchase of Nuance is a play for the healthcare market.
Microsoft and Nuance: Much More than Healthcare
The deal’s justification is focused on the large addressable market for healthcare IT where both Nuance and Microsoft are investing. Aragon feels that Microsoft will be able to leverage Nuance in many of its growing vertical market practice areas such as energy, financial services, government, and manufacturing.
While some of Nuance’s voice capabilities are positioned as a modern IVR, its capabilities go further than that. Voice recognition, along with conversational AI, gives Nuance the ability to build customer service platforms In a variety of industries. This fact alone is one of the reasons for the 13.3x multiple.
Voice Biometrics and Identity
Particularly, the ability to be able to authenticate the identity of a speaker is an area of digital/biometric identity. Microsoft gets this technology along with the conversational AI offering.
Microsoft Finds its Voice for Future Acquisitions
This deal, while it is all cash, is additive to Microsoft, unlike the LInkedIn deal from just a few years ago. To us, Microsoft will do better with an acquisition strategy that is focused on adding core technology to Microsoft and most importantly, driving incremental revenue. This is exactly what the Nuance deal does.
Bottom Line
Microsoft made a smart move in acquiring Nuance. As the march toward cloud-based industry solutions continues, so will the need to make additive acquisitions to support the growth goals for Microsoft Azure. With the fierce competition between cloud providers, expect to see continued M&A by Apple, Google, IBM, Microsoft, Salesforce, and Oracle.