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.
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.