Microsoft recently announced the acquisiton of Nuance Communications (NUAN) for 20 billion dollars.
Given the fact that I knew jack shit about Nuance before the announcment, I thought that it could be a good idea to analyze the company a bit, just to see if that acquisition makes sense.
I'm a bit worried about big acquisitions since the acquisition of Family Dollar by Dollar Tree (DLTR). That huge acquisition has been a mistake, because Dollar Tree overpaid. Since the acquisiton, Dollar Tree hasn't performed very well. It made me understand how the price paid can turn bad for a company. And there are worse examples, like Valeant that bought many companies and got an incredibly huge debt.
But let's go back to Microsoft and Nuance...
Over the last 5 years, NUAN revenues have decreased, from 1,9 billion dollars in 2016 to 1,5 billion dollars in 2020. For the same period, EPS went from 0,07$ to -0,04$. Free cash flows have been positive every year since 2016 but are decreasing too...
Debt VS earnings is very high. It could be a burden, but after being mixed with Microsoft, the debt will look unsignificant.
ROE has always been low for NUAN (negative or under 10).
With more than 130 billion dollars on hand, Microsoft can buy Nuance without any problem. It won't make any difference for us, shareholders. So, even if they overpay for it (they actually pay something like 65 times forward earnings, which is a lot for a company with such a track record), they'll still have plenty of money.
Given these numbers, I'm not seduced at all by the acquisition. But what I lack is a comprehension of the possible synergies of both companies. Does Nuance offers something about Artificial Intelligence that will get bigger and more popular via Microsoft? I hope so. The market seems to be positive about the acquisiton, because MSFT went to a record level yesterday.
I have no problem at all of keeping my MSFT shares. I still love that company, which is one of the best in the world in my opinion.
I'll wait to see where it's heading. But I can't write an excited post for now.