Financial Information ($USD)

• Enterprise Value: $19.7 Billion
• EV/LTM Revenue: 13.97x
• EV/LTM EBITDA: 89.55x

Transaction Details

• Microsoft (Nasdaq: MSFT) today announced that it will acquire Nuance Communications, Inc. (Nasdaq: NUAN) in an all-cash transaction valued at $19.7 billion.
• Nuance, a speech recognition and artificial intelligence company, will be acquired for $56.00 per share, approximately 23% higher than the firm’s closing price on Friday.
• In the fourth quarter of 2020, Nuance reported approximately $346 million in revenue and $7 million in net income.
• The transaction is Microsoft’s second largest acquisition, just short of the company’s 2016 purchase of LinkedIn for $24.4 billion.
• Nuance shares jumped 16 percent to record territory today at over $53 per share, while Microsoft’s share price has increased 0.33% since the announcement.
• The transaction has been approved by both company boards and is expected to close by the end of the year, but remains subject to standard regulatory oversight along with approval by Nuance shareholders.

martinwolf Analysis

• Leader of the Channel: Microsoft continues to leverage its formidable channel as a key differentiating factor, and it is the most partner-centric of its peers. Acquisitions like this are a key strategy in enhancing the value of this network—Nuance’s speech recognition and AI capabilities add more tools to a growing toolbox available to partners.
• The Next Level: Microsoft and Nuance already had close ties, announcing in 2019 that a partnership targeting the healthcare industry would be built on top of Microsoft Azure. On the earnings call, Nuance CEO Mark Benjamin cited an ongoing integration of Nuance into Microsoft Teams.
• Tech and Breadth: On top of its general speech recognition and artificial intelligence capabilities, Nuance has focused closely on the healthcare vertical—an area Microsoft CEO Satya Nadella cited as “one of the fastest-growing infrastructure software revenue streams in history.” Acclimating Nuance’s language-processing engine to medical jargon has been a multi-year project.
• Big Deal: This is Microsoft’s second largest deal, but it’s one of a number of major transactions under the helm of Satya Nadella aimed at aggressively building out the firm’s vertical and horizontal capabilities. After a rare high profile miss with TikTok last year, the firm bought videogame publisher ZeniMax and is reportedly rumored to be in talks with Discord.

For more information about this transaction, click here to read the press release from Microsoft.

*Enterprise Value from Press Release and Nuance financials from FactSet.

martinwolf was not the advisor in this transaction.