The bear just keeps grumbling – and we don’t mean the bear market. Instead, we’re talking about the all-the-rage bear hugs that companies are giving each other. The latest: Nuance Communications’ $40m unsolicited offer for Zi Corp. (Incidentally, the new hostilities come as a pair of previous unsolicited deals – Cadence Design Systems’ run at Mentor Graphics and Electronic Arts’ move on Take-Two Interactive – head toward largely civil conclusions.)
Nuance’s offer is a classic opportunistic squeeze play, right down to the timing. The acquisition-hungry company launched the bid just hours after Zi reported second-quarter results that did nothing to shore up its already weak standing on Wall Street. (Among the lowlights for Zi: Sales in the second quarter fell by one-third, and it burned through half its cash, which fell to just $2.6m from $5m at the beginning of the year.)
Still, Nuance sees some value in Zi, and Chris Hazelton, who heads up The 451 Group’s Mobile Practice, agrees. He notes that Zi’s handwriting-recognition technology would complement Nuance’s existing mobile offering. Handwriting recognition is particularly important in Asia, where symbols rather than letters are used in many writing systems. Of course, Asia is also a booming market for mobile products.
Nuance has already shown that it’s ready to go shopping in the mobile market. About a year ago, it spent $265m for Tegic Communications to get a keypad technology platform. And make no mistake, mobile is becoming an increasingly important slice of business for Nuance, which was formerly known for basic speech recognition on PCs. In Nuance’s most-recent quarter, revenue in its mobile business grew more than twice as fast as overall revenue, and the company projected that the division would account for 20% of total sales in the current fiscal year, up from just 13% last year.
We wouldn’t be surprised in the least if Nuance ended up ahead of its projection for its mobile business. The reason: We fully expect it to acquire Zi, which would add about $15m to the top line. Zi doesn’t want to sell – and told Nuance as much in an SEC filing – but we wonder how long the money-burning company can fend off Nuance. We’re guessing most Zi shareholders, who saw the stock sink to just 30 cents earlier this month, would like Zi to use its handwriting technology product to sign off on Nuance’s bid of 80 cents per share.
Selected unsolicited tech deals
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Source: The 451 M&A KnowledgeBase