By Aaron Tilley
Microsoft Corp. has agreed to buy artificial intelligence
company Nuance Communications Inc. for $16 billion, extending Chief
Executive Satya Nadella's run of big acquisitions to accelerate
growth in everything from healthcare to videogaming.
Microsoft said Monday it would pay $56 per Nuance share, a 23%
premium over Friday's closing price, in a bet on the growing demand
for digital tools within healthcare. The all-cash deal is
Microsoft's second largest acquisition under Mr. Nadella. The
company in 2016 spent about $26 billion for professional network
Mr. Nadella's deal making has taken off since that landmark
purchase. Microsoft has undertaken more than 100 acquisitions in
the past four years, according to data provider Dealogic,
committing more than $26 billion not including the Nuance deal.
Last year, Mr. Nadella tried to acquire parts of short-video app
TikTok, before talks fell apart. Soon after, Microsoft struck a
$7.5 billion deal for videogame company ZeniMax, the maker of the
popular Doom franchise. Microsoft this year has held talks to
acquire messaging platform Discord Inc. for $10 billion or more,
The Wall Street Journal reported last month.
"Over the past seven years, we've taken a consistent approach to
mergers and acquisitions of all sizes," Microsoft finance chief Amy
Hood said on an investor call Monday. Driving the deals, she said,
is Microsoft's desire to expand into high-growth markets.
That pursuit comes as Big Tech rivals of Microsoft, notably
Facebook Inc., Amazon.com Inc. and Alphabet Inc.'s Google, may be
distracted by antitrust probes that potentially could hobble their
ability to strike deals.
Google and Facebook have done blockbuster acquisitions in the
past. Google bought YouTube and its large audience in 2006 and
Facebook pocketed Instagram in 2012. While the companies defend
their business practices, U.S. regulators now question whether the
deals have given them too much power.
Microsoft may be motivated to strike now in case the regulatory
environment for deal making toughens, said Herb Hovenkamp, an
antitrust professor at the University of Pennsylvania Law School.
Minnesota Sen. Amy Klobuchar this year proposed broad changes to
U.S. antitrust laws that could heighten scrutiny particularly for
large tech companies.
"It's a bit like gun control," Mr. Hovenkamp said. "As soon as
somebody is sniffing around about increasing legislation, everyone
goes out and buys guns."
Sellers as well may be motivated to engage with Microsoft rather
than a competitor that is in the crosshairs of antitrust
regulators, analysts said, to avoid having a transaction fall
"It's a lot easier to enter into an agreement with Microsoft
than a rival who has potential legal overhang," said Brad Reback,
an analyst at Stifel Nicolaus & Co.
Mr. Nadella's deal making at Microsoft began shortly after he
took the helm in 2014. He struck a $2.5 billion deal for the owner
of the Minecraft videogame, Mojang AB, within months of becoming
CEO. He followed the LinkedIn acquisition in 2016 with the purchase
two years later of code-collaboration site GitHub for $7.5
Microsoft is hardly alone in deploying the deals playbook to
expand its software business. Business-software provider
Salesforce.com Inc. last year agreed to buy messaging company Slack
Technologies Inc. for $27.7 billion, strengthening its hand against
Microsoft. The year prior Salesforce reeled in data-visualization
platform Tableau Software Inc. for more than $15 billion in stock.
Communications-software company Twilio Inc. last year said it would
commit $3.2 billion in stock to acquire Segment, a provider of
tools to track customer data.
Microsoft's interest in accelerating growth through acquisitions
has increased given its success with past deals, said Mark
Moerdler, an analyst at Bernstein Research. "The company is gaining
confidence in their ability to acquire well and execute well on
those acquisitions," he said, adding that the Nuance deal could
fuel Microsoft's ambitions for its healthcare-focused
Nuance, based in Burlington, Mass., was a pioneer in speech
recognition and artificial intelligence technology. Its software
formed the basis of Apple Inc.'s Siri voice assistant before an
in-house version was introduced. Nuance explored a possible sale as
far back as 2014, when Samsung Electronics Co. and private-equity
firms were seen as the most likely buyers.
Voice assistants have taken hold as consumers embrace smart
devices around their home. Amazon helped popularize its Alexa voice
assistant through its Echo smart speaker, and Google offered
equipment with its version of a virtual helper, called Google
Microsoft has been investing in speech systems for years, though
with less success. Last year, the company said it would shift its
consumer voice assistant offering, called Cortana, away from trying
to compete with Amazon and Google in the consumer market to focus
more on supporting the company's business-focused software
Mr. Nadella said the Nuance deal reflects a growing demand for
tech applications in healthcare, in particular the use of
artificial intelligence "This is projected to be one of the
fastest-growing infrastructure software revenue streams in
history," he said about Nuance's expertise in clinical
Nuance has customers in healthcare, finance and other
industries, sectors where many companies use Microsoft products.
The two companies in 2019 said they would partner around the use of
artificial-intelligent assistants for doctor visits. The healthcare
product would be built on top of Microsoft's Azure cloud service,
they said at the time.
During the pandemic, as demand for remote healthcare surged, the
two companies deepened their ties through the integration of Nuance
technology into Microsoft's Teams workplace-collaboration software
suite, Nuance Chief Executive Mark Benjamin said during the
Microsoft shares closed little changed in Monday trading.
Nuance's stock rose almost 16%.
Write to Aaron Tilley at email@example.com
(END) Dow Jones Newswires
April 12, 2021 18:04 ET (22:04 GMT)
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