Nuance To Continue Acquisitions, But At a Slower Pace

Since 2000, Nuance has acquired 28 other companies, spending over $1.9 billion in the process. For many reasons, this EU antitrust case included, growth of this nature is unsustainable.

Here is the number of Nuance acquisitions by year:

As you can see, the peak year was 2007, and things have fallen off sharply since then. Paul Ricci has stated in earnings calls that they intend to be more deliberate in their acquisition targets in the future. Nuance has a very strong technology and customer portfolio.

In most of the markets they are in, they have a commanding market share. There's little incentive for Nuance to squash all competitors, as that would invite stronger antitrust scrutiny. Additionally, there is little evidence that Nuance wants to have to pay attention to the smaller deals, as those tend to have lower margins. 

They will likely not make any more technology acquisitions unless something really new and innovative appears. However, they may make acquisitions to enter new markets or to gain major customers. Jott, for example, was acquired because Nuance wanted to get into the casual transcription market and buying them was easier than creating their own service. Google's Google Voice product is seen as a large threat in this space.

In looking at the companies that Nuance has acquired and how they fit into their major divisions, most of the acquisitions have either been in Network Speech (SpeechWorks, Philips, Nuance, Viecore, BeVocal), Medical Dictation and Transcription (eScription, Dictaphone, etc), or Mobile (Jott, Voice Signal, Tegic, etc). In the first two divisions, the acquired technologies or consulting groups fit generally well into the existing structures. Not acquisitions went smoothly, but they all generally fit.

Mobile however, is a different story. In looking at the mobile companies that Nuance has acquired, they are all disparate. On-device voice dialing, keypad text entry, hybrid speech recognition, casual transcription, mobile advertising, etc. While these are all mobile applications, there is no one compelling story that is told. Their capitalization on all of these groups and technologies has been fairly limited and fractured.

 

Overall, I think that Nuance is not driven by a fear of litigation, but by the fact that the continued integration of new technologies and companies is draining on a company. They are still digesting their previous deals and will be more careful / targeted about new ones.

This author consults with leading institutions through GLG