Why Everyone, or Nobody, Would Want to Acquire Nuance

June 16, 2014 by Jon C. Ogg

Nuance Communications Inc. (NASDAQ: NUAN) owes its fortunes back to the days of Lernout & Hauspie in the 1990s. Now the independent speech recognition leader is seeing its shares surge on reports that the company is exploring a possible sale. The reality is that many companies would want to own Nuance, but the flip-side is that no one may need to actually the company.

A Dow Jones story sent the shares up, noting that Samsung Electronics and private equity forms have held talks. Still, we would advise readers to consider that buyout rumors have surfaced in Nuance before.

Another issue to consider is that this is, art least so far, one of the activist investments of Carl Icahn which has yet to pan out. Nuance is almost 20% owned by affiliates of Carl Icahn, and Mr. Icahn was successful in getting the desired board seats he was seeking.

Apple Inc. (NASDAQ: AAPL) was once thought to be a buyer of Nuance, and ditto for Microsoft Corp. (NASDAQ: MSFT).

Nuance once even confirmed that it was part of the technology behind Apple’s Siri voice and recognition in the iPhone and iPad. Where Nuance really shines is in its Dragon software and related applications. it is taking over the speech-to-text in legal, physician, and other document creation.

Still, Nuance has faced some difficult organic trends for several years now – at least its chart indicates that even if raw revenue growth has been there up until recently. This stock has spent most of the last year in a range of $15 to $20.

Most of the big tech outfits have chosen a self-built solution, even if many of them are using certain aspects of their technology. The one issue that comes up in patents in software is that firms often have departments which do nothing other than try to work around patent infringement cases while coming up with close to an exact use.

Sales growth is expected to be 3% in 2014 to $2.02 billion, followed by 5.6% to $2.14 billion in 2015. The question is how much Nuance’s patents and intellectual property are worth. The company’s market cap is almost $6 billion after Monday’s big pop.

After a 9% gain to $18.70 on more than 13 million shares with about 45 minutes until the lose, Nuance has traded in a range of $13.00 to $20.01 in the last year.

Until real details are out about a deal, we would just consider this yet another Nuance merger rumor.