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January 15, 2009

Nuance talks up IBM and M&A deals

But is an IBM takeover on the cards?

By Jason Stamper

Speech recognition software company Nuance Communications Inc has bought several speech-related patents from IBM and is to sell $175m worth of stock to private equity investor Warburg Pincus to help fund mergers and acquisitions.

As well as taking ownership of the patents, the company said today that it would collaborate with IBM “to incorporate IBM technology into Nuance’s speech solutions”, as the companies commercialise existing technology and continue with joint development of speech technology for business and consumer uses.

Some market watchers view the arrangement as a precursor to a potential future acquisition of Nuance by IBM.

The company is best known for its Dragon line of speech recognition software, but it also produces systems that can convert text into good quality speech, as well as developing call routing systems for use in automated contact centres.

The warrant signed with Warburg Pincus will have a four-year term, once the deal closes in February.

There is a growing market for speech recognition technologies and according to Datamonitor sales have been showing an annual growth clip in excess of 20% during the past few years. The overall market for voice-recognition technology topped $1bn for the first time in 2006, it is estimated.

It is a segment that Nuance currently dominates, and its market share is increasing. Last year it took out its biggest rival in the healthcare dictation market when it acquired Philips Speech Recognition Systems in a $100m move that helped it build a firm footing in Europe.

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