Nuance (News - Alert) Communications has signed an agreement to acquire eScription, a provider of computer aided medical transcription technology.

 

Nuance expects that by uniting the strengths and resources of Nuance and eScription, the combined organization can deliver “scalable, highly productive solutions, and also accelerate future innovation to transform the way healthcare provider organizations document patient care.”

 

As per the acquisition agreement, total consideration for the transaction is approximately $363 million and comprises $340 million in cash and $23 million in Nuance common stock, and also the assumption of vested employee options with a value of approximately $37 million.

 

Nuance officials believe that with an estimated $7 billion spent on medical transcription in North America each year, the acquisition of eScription will accelerate Nuance’s ability to “effectively serve the industry with advanced transcription solutions.”

 

Paul Ricci (News - Alert), chairman and CEO at Nuance, said in a statement that eScription’s strengths in computer aided medical transcription workflow will accelerate his company’s delivery of solutions that improve the way patient data is captured, processed and used.

 

He also said that the combined company will focus on continued innovation to evolve healthcare documentation and lower transcription costs in excess of $1 billion in the next few years.

 

“Nuance has experienced robust demand for its on-demand, hosted healthcare solution, iChart, in recent years, with growth in the range of 30 to 40 percent,” commented Robert Wise, president of Healthcare division at Nuance.

 

He believes that eScription’s exclusive focus on building a highly efficient, scalable on-demand platform will allow Nuance to more completely address the continuing demand in this recurring revenue model.

 

He pointed out that his company is anticipating that combined revenues for their on-demand medical transcription and clinical documentation solutions will be between $175 million and $200 million in fiscal 2009.

 

Nuance expects the acquisition to add between $16.0 million and $18.0 million in non-GAAP revenue in fiscal 2008 and between $63.0 million and $68.0 million in fiscal 2009.

 

Also, the company is expecting GAAP revenue from eScription between $13.0 million and $15.0 million in fiscal 2008 and $56.5 million and $61.5 million in fiscal 2009.

 

Additionally, on a non-GAAP basis, the acquisition is expected to be accretive to earnings, excluding amortization, stock-based compensation and non-cash taxes, by approximately $0.00 to $0.01 per diluted share in fiscal 2008 and $0.06 to $0.08 cents per diluted share in fiscal 2009.

 

In connection with the transaction, Warburg Pincus, the global private equity firm, has agreed to purchase 5,760,369 shares of Nuance common stock at a purchase price of $17.36 per share—the closing price on Friday, April 4, 2008—for an aggregate investment of $100 million.

 

In addition, Warburg Pincus is expected to acquire a warrant to purchase 3.7 million shares of Nuance common stock upon the closing of the investment. The warrant has an exercise price of $20.00 per share and a four-year term. Plus, Warburg Pincus has also agreed not to sell any shares of Nuance common stock for a period of six months from the closing of the transaction.

 

“By teaming with Nuance, we can accelerate the realization of our common vision to provide highly efficient, cost-effective solutions for advanced end-to-end clinical documentation,” said Paul Egerman, Co-CEO at eScription.

 

Ben Chigier, Co-CEO at eScription, added that by joining forces with Nuance’s Dictaphone Healthcare division, “we believe that we can advance the combined company’s delivery of breakthrough capabilities to the overall healthcare market.”

 

The transaction is expected to close in Nuance’s fiscal third quarter 2008 and is subject to customary closing conditions and regulatory approvals.