Microsoft could snap up Nuance Communications for $16 billion, Bloomberg reported on Monday. Nuance Communications uses artificial intelligence (AI) for the healthcare industry. Bloomberg said that the deal could be announced today.
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According to the report, Microsoft (MSFT) could value Nuance at $56 per share, a premium of 23% to Nuance’s closing price of $45.58 on Friday. Bloomberg said that its data indicated that if Microsoft acquires Nuance, it would be MSFT’s second largest acquisition since its acquisition of LinkedIn with an equity value of $26 billion.
The report quoted Anurag Rana, a Bloomberg Intelligence senior analyst, “This can really help Microsoft accelerate the digitization of the health-care industry, which has lagged other sectors such as retail and banking. The biggest near-term benefit that I can see is in the area of telehealth, where Nuance transcription product is currently being used with Microsoft Teams.”
Nuance Communications (NUAN) currently has a market cap of approximately $13 billion and shares have soared 168.3% in the past year. The company reported revenues of $345.8 million in the fiscal first quarter with a non-GAAP diluted earnings per share of $0.20.
Nuance’s cloud-based offerings in the healthcare sector saw revenue growth of 28% year-on-year in Q1 while the company’s Dragon Medical and DAX Cloud revenues increased 22% year-on-year. Dragon is NUAN’s speech-recognition software.
Shares of MSFT have rallied 5.6% in the past five days and currently, it has a market cap of $1.9 trillion. (See Microsoft stock analysis on TipRanks)
Following the Bloomberg report, Oppenheimer analyst Timothy Horan reiterated a Buy and a price target of $275 on MSFT. Horan said in a note to investors, “Nuance Communications has world-class AI, but has struggled with execution. The company has undergone a comprehensive review, and is now a much leaner organization focused on cloud.”
“The $16B price tag would be the second largest in company history, behind LinkedIn at $24B in 2016. This raises integration risk, but we are confident that MSFT ($1.9T market cap) will be able to leverage this technology,” Horan added.
Overall, the rest of the Street is bullish on the stock in line with Horan’s view with a Strong Buy consensus rating based on 23 Buys. The average analyst price target of $282.57 implies that MSFT shares have 10.4% upside potential to current levels.
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