Earlier today, Microsoft announced its plans to acquire Nuance for $56 per share, 23 percent above Nuance’s closing price last Friday. The deal represents a cash outlay of $16 billion and a total valuation for Nuance of approximately $19.7 billion, including that company’s assumed debt.
Who is Nuance?
Nuance is a well-known natural language recognition player. The company’s technology is at the heart of Apple’s Siri personal assistant. Nuance also sells the renowned personal speech recognition software Dragon NaturallySpeaking, which is invaluable to many people with a wide range of physical disabilities.
Originally released in 1997, Dragon NaturallySpeaking was one of the first commercially available products for continuous dictation, software that did not require the user to pause briefly between words. In 2000, Dragon Systems was acquired by ScanSoft, which acquired Nuance Communications in 2005 and renamed itself Nuance.
Earlier versions of Dragon software used hidden Markov models to figure out the meaning of human speech, but this method had serious limitations compared to modern AI algorithms. In 2009, Stanford researcher Fei-Fei Li created ImageNet, a massive training dataset that led to a massive proliferation of deep learning algorithms used for modern AI technology.
After Microsoft researchers Dong Yu and Frank Seide successfully applied deep learning techniques to automatic speech recognition in real time in 2010, Dragon – now Nuance – applied the same techniques to its own speech recognition software.
Fast forward to today, and according to both Microsoft and Nuance, medical-focused versions of Dragon are used by 77 percent of hospitals, 75 percent of radiologists, and 55 percent of physicians in the United States.
Microsoft’s takeover game
Microsoft and Nuance entered into a partnership in 2019 to deliver ambient clinical intelligence (ACI) technologies to healthcare providers. ACI technology aims to reduce physician burnout and increase efficiency by offloading administrative tasks to computers. (A 2017 study published in the Annals of Family Medicine shows that doctors typically spend two hours keeping records for every hour of actual patient care.)
The acquisition of Nuance gives Microsoft direct access to the company’s entire customer list in the healthcare industry. It also gives Microsoft the ability to push Nuance technology, currently used mostly in the US, to Microsoft’s own large international market. Nuance CEO Mark Benjamin, who will continue to run Nuance as a Microsoft division after the acquisition, describes it as an opportunity to “super-scalable how we can change an industry.”
The move doubles Microsoft’s total addressable healthcare market to nearly $500 billion. It also combines what Microsoft CEO Satya Nadella describes as “the AI layer at the healthcare delivery point” with Microsoft’s own massive cloud infrastructure, including Azure, Teams and Dynamics 365.
The acquisition has been unanimously approved by the boards of both Nuance and Microsoft and is expected to close by the end of 2021.