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Dictation & transcription

Nuance to buy Dictaphone for US$357 million

BURLINGTON, Mass., and STRATFORD, Conn. – Nuance Communications, Inc., developer of Dragon Dictation, ScanSoft Imaging Solutions and other technologies, has announced that it will acquire Dictaphone Corp., the leading provider of dictation and speech recognition solutions for the healthcare industry.

This acquisition significantly accelerates Nuance’s strategy to automate manual transcription in healthcare, where an estimated $15 billion is spent worldwide each year.

The acquisition of Dictaphone expands Nuance’s product portfolio, market reach and revenue streams within the large and rapidly growing healthcare vertical. One of the most respected technology solutions vendors in the healthcare industry, Dictaphone has an installed base of dictation and transcription software systems serving over 4,000 hospital and outpatient facilities and approximately 400,000 physicians.

“Improvements in speech technology and pressures on the healthcare industry create a compelling opportunity for our companies to transform manual transcription through speech-enabled solutions,” said Paul Ricci, chairman and CEO at Nuance. “The combined resources, experience and talents of Nuance and Dictaphone will help accelerate the adoption of speech recognition to eliminate most manual transcription for healthcare in North America this decade, delivering over $5 billion in savings to care facilities and transcription service organizations.”

Nuance 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.

Under the terms of the agreement, consideration for the transaction is $357 million in cash, 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.

Through the companies’ partnerships with leading electronic medical records (EMR) vendors, systems integrators, medical transcription service organizations (MTSOs) and Nuance’s established network of Dragon Dictation Solutions VARs, the combined organization will be better positioned to effectively serve this market through an expansive portfolio of technologies and applications, and a deep set of services and capabilities.

“We share with Nuance the strong belief that speech recognition is not only at an inflection point in healthcare, it is also becoming an essential component of the industry’s drive toward cost reduction and clinical automation,” said Rob Schwager, chairman and CEO of Dictaphone. “By combining Dictaphone’s software application skills, understanding of physician documentation needs and workflows, and substantial market presence with Nuance’s deep expertise and innovation in speech recognition technologies, the combined company is extremely well-positioned to lead the market.”

Benefits of the transaction include:

• Enhanced Revenue Streams from Complementary Product Lines – Dictaphone adds significant and stable recurring revenue streams from many of its products and services, including ichart Web-based speech recognition editing outsourcing service, PowerScribe speech recognition system for radiology and pathology, EXSpeech enterprise-level speech recognition platform, and Enterprise Express voice/text workflow management solution.

Further, Dictaphone’s product portfolio complements Nuance’s Dragon Dictation Solutions, with a complete solution set for automating the capture and processing of patient data and clinical documentation.

• Talented and Accomplished Employees – Dictaphone brings a dedicated, talented team of professionals whose healthcare knowledge and expertise has established Dictaphone as the premier provider of dictation and transcription solutions. Part of this employee base includes more than 200 sales and professional services staff that have forged customer relationships with a majority of care facilities in North America. The result is a robust, experienced sales, support and services organization focused on delivering highly accurate speech-enabled solutions to the healthcare industry.

• Strong Customer Relationships – Dictaphone has a track record of selling systems to a wide range of healthcare institutions and has an installed base of approximately 4,000 hospitals, clinics and physician groups, including virtually all of the Top 100 and honors-winning hospitals in the U.S. In addition, Dictaphone’s solutions are currently used by approximately two out of every three physicians in North America. Following the acquisition, Nuance will have one of the industry’s most extensive rosters of IT system deployments.

• Extensive Healthcare Research and Development Resources – Dictaphone has a rich history with more than 75 years of experience and a team of engineers and scientists with years of domain expertise in developing the most innovative and effective speech solutions for healthcare. Following the transaction, Nuance will gain approximately 100 patents and patents pending from Dictaphone, expanding its portfolio of intellectual property to comprise approximately 500 patents protecting the investments made within its range of speech technologies and products.

• Strong Partner and Channel Networks – Nuance and Dictaphone intend to leverage a strong network of product and channel partners to rapidly deliver the benefits of speech recognition throughout the healthcare industry – from healthcare IT and EMR vendors and systems integrators to dictation workflow providers and MTSOs. The combined organization will deliver the most widely used speech technology within healthcare, integrated with solutions from industry leaders such as Cerner, GE/IDX, McKesson, and Misys Healthcare Systems.

Since 2004, Nuance has steadily increased its investments within healthcare, putting substantial resources in product development, sales, business development and marketing behind this effort. The company has continually enhanced its medical version of Dragon NaturallySpeaking, formed a dedicated sales and business development organization and recently acquired MedRemote to broaden its solutions portfolio and expand its presence in healthcare. These investments produced record dictation revenues for Nuance in 2005. The success that Nuance has experienced through its healthcare initiatives further validates a compelling opportunity for growth and leadership.

About Dictaphone
Dictaphone, ranked 31st in Healthcare Informatics ranking of top 100 companies by healthcare revenue, is the leading provider of dictation, transcription, speech recognition and natural language processing systems in the healthcare market. Dictaphone’s Integrated Voice Systems division is the leading provider of highly scalable dictation systems focused upon the public safety and legal markets. Dictaphone is headquartered in Stratford, Connecticut, and has worldwide marketing, sales, service and support organizations throughout United States, the United Kingdom, Canada and Europe.

Nuance Communications, Inc.
Nuance (Nasdaq: NUAN) is the leading provider of speech and imaging solutions for businesses and consumers around the world. Its technologies, applications and services make the user experience more compelling by transforming the way people interact with information and how they create, share and use documents. Every day, millions of users and thousands of businesses experience Nuance’s proven applications. For more information, please visit nuance.com.

 

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