Hot off of last year’s merger with ScanSoft, Nuance Communications on Wednesday announced a definitive agreement to acquire Dictaphone Corp. of Stratford, Connecticut, for $357 million in cash in an effort to reinvent the venerable sound recording company into a health care speech specialist of the future.

 

“For the purpose of investors, one should not think of Dictaphone as a dictation software company,” said Paul Ricci, chairman and CEO at Nuance.

 

“Dictaphone has been through a number of changes as it's transformed itself over the last five years,” Ricci told analysts on a Wednesday morning conference call.

 

With 2005 revenue in the range of $150 million, Dictaphone has an installed base of dictation and transcription software systems serving over 4,000 hospital and outpatient facilities and approximately 400,000 physicians. As part of its transformation, the company has now changed its revenue mix to derive approximately 90 percent of its total sales from the health care segment. Upon completion of the acquisition, that would give Nuance a tremendous boost in market reach tapping into the all-important vertical, where an estimated $15 billion is spent worldwide each year.

 

In its press release, Nuance said it expects the acquisition to add between $80 million and $85 million in revenue in fiscal year 2006 and between $180 million and $200 million in fiscal year 2007. The transaction is expected to generate cost synergies between $20 million and $25 million per year. Dictaphone currently employs approximately 700 people around the world – an overwhelming percentage of its headcount is based in the U.S.

 

The acquisition is expected to be dilutive to earnings on a GAAP basis by approximately $(0.12) to $(0.11) cents per share in fiscal year 2006 and $(0.05) to $(0.02) cents per share in fiscal year 2007. On a non-GAAP basis, the acquisition is expected to be accretive to earnings, excluding amortization, acquisition-related costs and stock-based compensation, by approximately $0.02 to $0.03 cents per share in fiscal year 2006 and $0.06 to $0.09 cents per share in fiscal year 2007.

 

Under the terms of the agreement, the $357 million cash amount is subject to adjustments. Nuance has obtained a commitment for a new senior secured credit facility from UBS Investment Bank, Credit Suisse, Citigroup and Bank of America to finance the transaction. The facility comprises a $355 million term loan and a $75 million revolving credit facility. Closing of this commitment is subject to customary conditions.

 

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Robert Liu is Executive Editor at TMCnet. Previously, he was Executive Editor at Jupitermedia and has also written for CNN, A&E, Dow Jones and Bloomberg. For more articles, please visit Robert Liu's columnist page.