Speech-recognition software maker Nuance Communications Inc (NUAN.O) said it will acquire smaller rival Transcend Services Inc TRCR.O for about $300 million in cash, expanding its customer base in the small- to mid-size hospital market.
Nuance's $29.50 a share offer for Transcend, which provides medical transcription and clinical documentation services, is at a 40 percent premium to Transcend's Tuesday close on the Nasdaq.
"The acquisition is a natural extension of Nuance's existing healthcare business, and will strengthen our solution and services portfolio, as well as enhance our profitability," Janet Dillione, general manager of Nuance's Healthcare business said.
Nuance, whose technology powers the Siri voice recognition feature in Apple Inc's (AAPL.O) iPhone 4S, has been beefing up its product portfolio through acquisitions as rapid adoption of smartphones boosts demand for speech services.
Last year, the company, which competes with Microsoft Corp (MSFT.O) and Google (GOOG.O) in the speech recognition market, bought about half a dozen companies including rivals Vlingo and Swype.
Brokerage FBR Capital Markets said the acquisition will help Nuance penetrate the small to mid-sized hospital market, where Transcend, which turns medical dictation into electronic documents, has a strong presence.
"(This) should also give Nuance more pricing power in this underpenetrated space, as well as enable the company to have a bulked up product portfolio to further penetrate its customer base in this all-important growth area," it said in a note to its clients.
FBR analyst Daniel Ives said he expects Nuance to continue acquisitions this year at a pace similar to or more aggressive than in 2011, targeting companies in the mobile and healthcare areas.
The deal, which is expected to close in the second half of fiscal 2012, will add between 8 cents and 9 cents to Nuance's adjusted per-share earnings, and $140 million to $150 million to fiscal 2013 revenue.
However, Wedbush Securities said the acquisition did not add any technology to Nuance's speech or transcription business and appeared to be more of an opportunistic financial buy.
"The acquisition highlights our concerns over Nuance's rollup strategy, which has resulted in weak cash flow that has lagged non-GAAP net income meaningfully, and a material increase in stock compensation and non-GAAP adjustments," it said in a note.
The company will use cash on hand to finance the deal.
Evercore Partners was the financial adviser to Nuance on the deal.
Last month, Nuance had reported a weak quarterly revenue, saying that its relationships with mobile customers had become more complex, leading to delayed revenue in some cases.
Shares of Transcend jumped nearly 40 percent to $29.29 on Tuesday morning on the Nasdaq. The stock had been trading at its lowest levels in nearly a year and had hit a year-low of $19 on Feb 2.
Nuance's shares rose more than 3 percent to $26.31 on the Nasdaq. The company's shares have fallen 18 percent since hitting a year high of $31.15 on Feb 9.
(Reporting by Sayantani Ghosh in Bangalore; Editing by Brenton Cordeiro)