Microsoft, on an accelerated growth push, is buying speech recognition company Nuance in an all-cash transaction valued at $19.7 billion, including the AI software company's debt.

This acquisition is the Redmond, Washington-based software giant's second largest under CEO Satya Nadella, after its $26 billion acquisition of professional networking site Linkedin, in 2016. Microsoft will pay $56 per share, a 23% premium over the closing price of Nuance on April 9.

"For Nadella & Co, this is the right acquisition at the right time with Microsoft doubling down on its healthcare initiatives over the coming years," said Wedbush Securities analysts Dan Ives and Strecker Backe in a research note.

"In our opinion, Microsoft is on the M&A warpath over the next 12 to 18 months and Nuance could be the first step in an increased appetite for deals in 2021 with Discord (video game chat community) another potential trophy for Redmond," according to the analysts.

Microsoft targets growth in health care
Nuance's products include the Dragon Ambient eXperience, Dragon Medical One and PowerScribe One for radiology reporting, all clinical speech recognition SaaS offerings built on Microsoft Azure. The company's products are currently used by more than 55% of physicians and 75% of radiologists in the U.S., and by 77% of U.S. hospitals. Its health care cloud revenue experienced 37% year-over-year growth in fiscal 2020.

"AI is technology's most important priority, and health care is its most urgent application," Microsoft CEO Satya Nadella said in a statement.

Aside from health care, Nuance provides AI expertise and customer engagement solutions across interactive voice response, virtual assistants, and digital and biometric solutions to companies in all industries. This will join with Microsoft's cloud, including Azure, Teams, and Dynamics 365, to deliver next-generation customer engagement and security solutions.

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