By Aaron Tilley 

Microsoft Corp. has agreed to buy artificial intelligence company Nuance Communications Inc. for $16 billion, extending Chief Executive Satya Nadella's run of big acquisitions to accelerate growth in everything from healthcare to videogaming.

Microsoft said Monday it would pay $56 per Nuance share, a 23% premium over Friday's closing price, in a bet on the growing demand for digital tools within healthcare. The all-cash deal is Microsoft's second largest acquisition under Mr. Nadella. The company in 2016 spent about $26 billion for professional network LinkedIn Corp.

Mr. Nadella's deal making has taken off since that landmark purchase. Microsoft has undertaken more than 100 acquisitions in the past four years, according to data provider Dealogic, committing more than $26 billion not including the Nuance deal.

Last year, Mr. Nadella tried to acquire parts of short-video app TikTok, before talks fell apart. Soon after, Microsoft struck a $7.5 billion deal for videogame company ZeniMax, the maker of the popular Doom franchise. Microsoft this year has held talks to acquire messaging platform Discord Inc. for $10 billion or more, The Wall Street Journal reported last month.

"Over the past seven years, we've taken a consistent approach to mergers and acquisitions of all sizes," Microsoft finance chief Amy Hood said on an investor call Monday. Driving the deals, she said, is Microsoft's desire to expand into high-growth markets.

That pursuit comes as Big Tech rivals of Microsoft, notably Facebook Inc., Amazon.com Inc. and Alphabet Inc.'s Google, may be distracted by antitrust probes that potentially could hobble their ability to strike deals.

Google and Facebook have done blockbuster acquisitions in the past. Google bought YouTube and its large audience in 2006 and Facebook pocketed Instagram in 2012. While the companies defend their business practices, U.S. regulators now question whether the deals have given them too much power.

Microsoft may be motivated to strike now in case the regulatory environment for deal making toughens, said Herb Hovenkamp, an antitrust professor at the University of Pennsylvania Law School. Minnesota Sen. Amy Klobuchar this year proposed broad changes to U.S. antitrust laws that could heighten scrutiny particularly for large tech companies.

"It's a bit like gun control," Mr. Hovenkamp said. "As soon as somebody is sniffing around about increasing legislation, everyone goes out and buys guns."

Sellers as well may be motivated to engage with Microsoft rather than a competitor that is in the crosshairs of antitrust regulators, analysts said, to avoid having a transaction fall through.

"It's a lot easier to enter into an agreement with Microsoft than a rival who has potential legal overhang," said Brad Reback, an analyst at Stifel Nicolaus & Co.

Mr. Nadella's deal making at Microsoft began shortly after he took the helm in 2014. He struck a $2.5 billion deal for the owner of the Minecraft videogame, Mojang AB, within months of becoming CEO. He followed the LinkedIn acquisition in 2016 with the purchase two years later of code-collaboration site GitHub for $7.5 billion.

Microsoft is hardly alone in deploying the deals playbook to expand its software business. Business-software provider Salesforce.com Inc. last year agreed to buy messaging company Slack Technologies Inc. for $27.7 billion, strengthening its hand against Microsoft. The year prior Salesforce reeled in data-visualization platform Tableau Software Inc. for more than $15 billion in stock. Communications-software company Twilio Inc. last year said it would commit $3.2 billion in stock to acquire Segment, a provider of tools to track customer data.

Microsoft's interest in accelerating growth through acquisitions has increased given its success with past deals, said Mark Moerdler, an analyst at Bernstein Research. "The company is gaining confidence in their ability to acquire well and execute well on those acquisitions," he said, adding that the Nuance deal could fuel Microsoft's ambitions for its healthcare-focused cloud-computing business.

Nuance, based in Burlington, Mass., was a pioneer in speech recognition and artificial intelligence technology. Its software formed the basis of Apple Inc.'s Siri voice assistant before an in-house version was introduced. Nuance explored a possible sale as far back as 2014, when Samsung Electronics Co. and private-equity firms were seen as the most likely buyers.

Voice assistants have taken hold as consumers embrace smart devices around their home. Amazon helped popularize its Alexa voice assistant through its Echo smart speaker, and Google offered equipment with its version of a virtual helper, called Google Assistant.

Microsoft has been investing in speech systems for years, though with less success. Last year, the company said it would shift its consumer voice assistant offering, called Cortana, away from trying to compete with Amazon and Google in the consumer market to focus more on supporting the company's business-focused software tools.

Mr. Nadella said the Nuance deal reflects a growing demand for tech applications in healthcare, in particular the use of artificial intelligence "This is projected to be one of the fastest-growing infrastructure software revenue streams in history," he said about Nuance's expertise in clinical documentation.

Nuance has customers in healthcare, finance and other industries, sectors where many companies use Microsoft products. The two companies in 2019 said they would partner around the use of artificial-intelligent assistants for doctor visits. The healthcare product would be built on top of Microsoft's Azure cloud service, they said at the time.

During the pandemic, as demand for remote healthcare surged, the two companies deepened their ties through the integration of Nuance technology into Microsoft's Teams workplace-collaboration software suite, Nuance Chief Executive Mark Benjamin said during the investor call

Microsoft shares closed little changed in Monday trading. Nuance's stock rose almost 16%.

Write to Aaron Tilley at aaron.tilley@wsj.com

 

(END) Dow Jones Newswires

April 12, 2021 18:04 ET (22:04 GMT)

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