Seeking Alpha

Nuance slips; M&A talks reportedly slowed by "complexities"

  • Nuance's (NUAN -2.9%) acquisition talks have been slowed by deal complexities, sources tell dealReporter.
  • The WSJ reported on June 16 Nuance (presumably with Carl Icahn's blessing) is exploring a possible sale, and has held talks with P-E firms and Samsung.
  • Among the likely challenges facing a deal: Nuance's product line covers markets ranging from healthcare (still over half of op. profit) to mobile to enterprise, and a buyer may only be interested in parts of the business. Also, the fact the company's software and services support a wide array of platforms (iOS, Android, Windows, etc.) means a sale to a suitor such as Samsung could alienate some existing clients.
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Comments (11)
  • jzheng220wz
    , contributor
    Comments (125) | Send Message
     
    that means the takeover rumor is for real?
    26 Jun, 02:42 PM Reply Like
  • lindsaygdurham
    , contributor
    Comments (368) | Send Message
     
    This was published June 16th so it definitely was not a rumor to answer your question...........
    Speech-recognition software maker Nuance Communications Inc. has held discussions with potential suitors regarding a sale of the company, according to people familiar with the matter.

     

    The Burlington, Mass., company has recently spoken about a possible sale of the company with Samsung Electronics Co. and private-equity firms, some of the people said. It isn’t clear where sale talks, some of which happened earlier this year, currently stand or if they will lead to a deal.
    26 Jun, 05:32 PM Reply Like
  • student23
    , contributor
    Comments (86) | Send Message
     
    Is this source credible?
    26 Jun, 02:50 PM Reply Like
  • dgulick
    , contributor
    Comments (1562) | Send Message
     
    "could alienate some existing clients"

     

    As a cut-throat move, that is the point -- Samsung buying Nuance would leave Apple hanging in the breeze to develop their own voice recognition for Siri, and tiptoeing around Nuance's massive VR/NLP patent portfolio, something Apple is already attempting to do, and finding difficult, still many years from matching what Nuance provides (84 languages/dialects, more than Google, and including many/all the languages spoken in countries that Apple is trying to compete with Samsung for marketshare in). The comparison to Apple Maps is a good one, a Siri that can't understand you is a move Apple absolutely *must* avoid!

     

    "I helped Apple Wreck a Nice Beach" Lol! (The opposite is also true, if Apple were to buy Nuance, then Samsung's Galaxy S-Voice would be in trouble).

     

    But there is no reason an acquirer can't license back to these "alienated" clients, since those clients would have very little choice in the near term, and also the licensing agreements likely have locks anyway.

     

    Also, this post failed to list Blackberry as another competing platform, Nuance provides VR for all of QNX's customers: GM, Honda, Chrysler, BMW, Audi, Hyundai, etc. http://bit.ly/ySdz0U (Nuance through other platforms also provides VR for Ford, Toyota, Subaru, etc, Nuance has a virtual lock in the auto industry).

     

    But as far as investing in Nuance, its acquisition "complexities" are precisely why it is such a good stock (in particular the healthcare and enterprise revenue streams). And even after the recent share price "run", shares are still at a huge discount as most analysts I have read are simply confused, extrapolating the prior 12 month revenue growth which has been hampered by the transition to SaaS pricing, their mistake will be realize in the next few quarters as 64% of revenues are now recurring and bookings last quarter were up +26% in Q1 and +43% YoY last quarter (well above analyst expectation of +6%).
    26 Jun, 03:11 PM Reply Like
  • jzheng220wz
    , contributor
    Comments (125) | Send Message
     
    great insight, appreciate it. btw, what would be your estimate on price target on NUAN? thanks again. and my guess that the buyout price would be in low 20's.
    26 Jun, 03:53 PM Reply Like
  • Chris Lau
    , contributor
    Comments (1934) | Send Message
     
    (NUAN) is better off going it alone. If it sells itself for parts right now, everything will be a fire sale. It's going to be a couple of quarters before subscription revenues pick up.

     

    A dip down to the 15's is possible in the near term, but that would be a great time to pick up more shares. The take out value for this company is well into the 20's.
    26 Jun, 05:52 PM Reply Like
  • dgulick
    , contributor
    Comments (1562) | Send Message
     
    I hope they hold out for low 30s at least, but with 2 board seats and investors growing impatient, Icahn may pressure them to settle for less. I agree with @Chris Lau, I think as an investment NUAN longs will do better without a sale, though we will certainly regret it if we slide back to 15 (which may happen if no buyout is announced), I won't be selling, I predict NUAN's total revenue YoY growth will be double digits with no signs of slowing as adoption of VR explodes (cars, phones / tablets, watches / glass / wearables, TVs, enterprise, medical records) and expenses are very front loaded (i.e., largest R&D spending has already been made), I see shares potentially double within 2 yrs.

     

    (Though I'd love it if Apple and Samsung got in a bidding war!)

     

    Here's a couple market projections:

     

    http://slidesha.re/TCwktI

     

    Global Voice Recognition Market To Reach 113 Billion In 2017

     

    "At the intersection of dominant players stands a single company - Nuance."

     

    http://bit.ly/TCwktM

     

    Global Speech Rec Market to Approach $70 Billion by 2015

     

    "The global market for voice recognition systems and software is projected to grow 29.1 percent during the next few years, reaching $69.4 billion by 2015"
    26 Jun, 07:44 PM Reply Like
  • lindsaygdurham
    , contributor
    Comments (368) | Send Message
     
    Now what? Get out of the stock?
    26 Jun, 05:30 PM Reply Like
  • Mr. Durden
    , contributor
    Comments (24) | Send Message
     
    Or buy puts.
    26 Jun, 09:41 PM Reply Like
  • lindsaygdurham
    , contributor
    Comments (368) | Send Message
     
    I would like to read the entire report by dealreporter.com but it looks like it would be hard to do, since they allow only certain people to do so.
    26 Jun, 05:35 PM Reply Like
  • pakmanequities
    , contributor
    Comments (18) | Send Message
     
    Excellent reply Dgulick!

     

    It's a "no brainer!" Anyone shorting the stock is definitely playing against the odds. As I stated prior they are in a great position for the future. If bookings continue to grow and their subscription revenue begins to be realized the stock will go up. If it gets acquired stock will go up. Last time Icahn and Soros were active in a stock, Herbalife did ok.....
    26 Jun, 08:49 PM Reply Like
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