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Microsoft Could Acquire These 22 Companies After the Nuance Deal - Business Insider

Satya Nadella Microsoft
Microsoft CEO Satya Nadella may be on "the M&A warpath" analysts say. Insider asked analysts which companies and startups might be next.
Reuters/Lucas Jackson

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Microsoft is on a multibillion-dollar shopping spree.

The company recently agreed to pay as much $19.7 billion for Nuance Communications, which provides artificial intelligence-powered assistance for health practitioners, in a deal that came not terribly long after its purchase of video game publisher Zenimax Media last year.

Meanwhile, Microsoft is said to be in exclusive talks to acquire online group chat platform Discord for as much as $10 billion, previously bid on the US operations of viral video app TikTok, and was reportedly in ill-fated talks with Pinterest for what would have been multibillion-dollar deal.

The company has the money to spend, ending its 2020 fiscal year with $136 billion cash on hand after the pandemic forced a shift to remote work and led to a boom in Microsoft's cloud and productivity software. Experts say that with its surging market cap of near $2 trillion — and its leading rivals slowed down by regulatory scrutiny — we can expect to see Microsoft open its wallet for companies large and small through the remainder of the year and beyond.

"Microsoft is on the M&A warpath over the next 12 to 18 months and Nuance could be the first step in an increased appetite for deals in 2021," Wedbush Securities analyst Dan Ives said in a note to clients.

Insider asked nine industry analysts which companies might be next on Microsoft's shopping list as it looks to bolster its existing businesses and break into new ones via acquisition. 

Some analysts say Microsoft could use M&A to shore up its cloud division, where it's considered the number-two player behind market leader Amazon Web Services in cloud computing. That's especially important as Google makes headway and IBM and Oracle are clawing out their own niches in the market.

It could also continue down the path laid by the Nuance deal and buy more AI startups, enhancing its presence in a key sector of tech. Other experts suggested that Microsoft look into startups in spaces as varied as geothermal energy or "rogue drone" removal. Some suggested that Microsoft could spend bigger than it ever has before on established names like Twilio, Okta, or even Twitter.

Here are 22 companies that analysts said would make sense for Microsoft to acquire. (All private company valuations were taken from Pitchbook unless otherwise noted, while data on public companies is accurate as of Friday afternoon.)

Discord

Discord CEO Jason Citron
Jason Citron, the co-founder and CEO of Discord.
Discord

Valuation: $10 billion

Microsoft is said to be in exclusive talks to acquire online group chat platform Discord for $10 billion or more. The voice chat and messaging app, often used by gamers, has seen a big boost in the pandemic.

Phil Spencer, Microsoft's gaming chief and the exec who would likely wind up with oversight of Discord if the acquisition goes through, explained in a March internal all-employee meeting what might be the rationale behind acquiring the app:

"Satya [Nadella, Microsoft's CEO] has really gotten onboard with content creators as an important part of Microsoft's platform future, and game creators are an important category of content creators," Spencer said, according to audio of the meeting reviewed by Insider.

Morningstar analyst Dan Romanoff told Insider that "after looking at Pinterest and TikTok, Microsoft seems pretty clearly to be interested in properties that have large and active user communities."

"With its 140 million monthly active users, Discord has largely been adopted by gamers, but since the lockdowns began, its user base of youngsters have increasingly used the platform for general socializing and study groups," he said.

Smartsheet

Mark Mader Smartsheet
Mark Mader, the CEO of Smartsheet.
Smartsheet

Market Cap: $7.75 billion

Smartsheet builds a cloud-based work management tool that D. A. Davidson analyst Rishi Jaluria told Insider Microsoft could acquire to bolster its collaboration products.

Smartsheet has also been mentioned as a potential acquisition target for Zoom, but as Jaluria points out, Microsoft and Smartsheet are both based in the Seattle area so there may be "links" between the companies.

Twilio

Jeff Lawson Twilio CEO
Jeff Lawson, the co-founder and CEO of Twilio.
Steve Jennings/Getty Images for TechCrunch

Market cap: $65.82 billion 

Twilio builds a cloud communications platform to help developers write apps that can send text messages and make phone calls. D. A. Davidson analyst Rishi Jaluria said Twilio would be an interesting — if pricey — acquisition for Microsoft, but it's unlikely the company would want to sell.

Twilio has been a favorite among analysts' potential Microsoft acquistion picks. RBC Capital Markets in a report last year said that Twilio would be a good buy for Microsoft in order to embed its voice, messaging and email communications into Microsoft's consumer and business applications — and bring along the more than 7 million developers who use it.

Morningstar analyst Dan Romanoff told Insider in August that Microsoft could add "name brand" acquisition targets such as Twilio to its shopping list. Twilio could be a good fit for its Microsoft 365 suite of business software applications, Azure cloud computing business, or Dynamics customer relationship management software, he said at the time.

But Twilio's market cap is significantly higher than Microsoft has ever paid for an acquisition, nearly three times as much as the $26 billion the company paid for LinkedIn.

MongoDB

Dev Ittycheria MongoDB CEO
Dev Ittycheria, the CEO of MongoDB.
MongoDB

Market cap: $19.33 billion

Microsoft could acquire database company MongoDB — a frequent critic of Amazon Web Services, Microsoft's chief cloud competition — to add to its Azure cloud business, growing the reach of its own database products, D. A. Davidson analyst Rishi Jaluria told Insider.

Algorithmia

Algorithmia founders Diego Oppenheimer and Kenny Daniel
Diego Oppenheimer, the co-founder and CEO of Algorithmia, at left, and Kenny Daniel, his co-founder.
Algorithmia

Valuation: $100 million

Seattle-based AI and machine learning startup Algorithmia would be a good acquisition target for Microsoft, Lopez Research analyst Maribel Lopez told Insider. Algorithmia investors include Gradient Ventures and Madrona Venture Group.

"Everybody's got their own AI ops, but they're actually some interesting startups that are in the space, like Algorithmia," Lopez said. "That would be a good tuck-in acquisition because they've been funded and they're not too big, so they could still be kind of interesting and become part of a platform. Everybody's talking about AI ops, but the reality is nobody's really doing it yet."

OctoML

OctoML co-founder and CEO Luis Ceze.
Luis Ceze, the co-founder and CEO of OctoML.
Madrona Venture Group

Valuation: $238 million

OctoML is basically an operating system that helps connect machine learning models to the hardware they're being used for, such as phones or cars. The open source version of OctoML is used by companies like Facebook, Amazon, and Microsoft in their products.

Lopez Research analyst Maribel Lopez said the startup could add to Microsoft's artificial intelligence capabilities.

"You're already going to put your stuff in Azure, so if you're doing that, then why wouldn't you do all of your machine learning operations pipeline," Lopez told Insider.

Airspace Systems

Jaz Banga Airspace Systems
Jaz Banga, the co-founder and CEO of Airspace Systems.
Reuters/Stephen Lam

Valuation: $70 million

San Francisco-based Airspace Systems builds specialized drones for identifying and removing "rogue drones." The startup has raised $25 million since it was founded in 2015, and its latest funding was a $20 million Series A led by Singaporean VC firm Singtel Innov8 in 2018.

Lopez Research analyst Maribel Lopez told Insider Airspace Systems's products could be used for security at airports: "If you're the FAA, you want to make sure that nobody is flying a drone around your airplanes because that could take down a plane if it got in the wrong spot," she said.

Within the public sector, Microsoft has an extensive track record of government-focused solutions, including its Azure Government cloud (the unit at the core of the $10 billion JEDI cloud deal with the Department of Defense, which is currently tied up in court amid protests from Amazon), as well as a recent $21.88 billion contract with the Army for its HoloLens headsets.

Rulai

Yi Zhang Rulai
Yi Zhang, the founder of Rulai.
Rulai

Valuation: $21.83 million

Campbell, California-based Rulai builds AI-enabled virtual assistants for use in customer service, HR, marketing, sales, and logistics. Founded in 2016, the startup has raised $14.5 million and its latest funding was a $8 million convertible note in 2018, and a $6.5 million Series A led by Palo Alto-based GSR Ventures in 2017.

Jim Lundy, founder and lead analyst of Aragon Research, told Insider he expected to see a lot of mergers and acquisitions around "conversational AI vendors," or AI companies that specialize in voice recognition, similar to Microsoft's planned acquisition of Nuance. Many of those vendors, like Rulai, are prime targets for acquisitions because they're small enough to be easily affordable to Microsoft but poised to grow big in the next few years, Lundy said.

Amelia

Chetan Dube Amelia
Chetan Dube, the CEO of Amelia.
Hemant Mishra /Mint via Getty Images

Valuation: Unknown

New York-based Amelia develops conversational AI for banking, insurance, healthcare, telecom, and IT services. Founded in 1998 as IPsoft, the company's "Amelia" AI can take the place of human agents. The company says its Amelia avatar provides the most "human-like" digital experience, though notably in 2018, Swedish online bank Nordnet ended its use of Amelia, calling the AI the wrong fit for the company.

As with Rulai, Amelia was identified by Aragon Research analyst Jim Lundy as a conversational AI vendor leading in the field, and could be a good fit for acquisition down the line.

Arturo

John-Isaac "jC" Clark Arturo
John-Isaac Clark, the CEO of Arturo.
Arturo

Valuation: Unknown

Chicago-based Arturo uses deep learning to analyze aerial images and provide insurance companies with property inspection data. Originally part of American Family Insurance, Arturo also provides predictive data for the insurance and claims market. Its most recent funding was a $8 million Series A led by San Francisco-based Crosslink Capital last April.

Similar to the companies specializing in conversational AI, Aragon Research analyst Jim Lundy told Insider that computer vision startups like Arturo are still in "incubation status," meaning there's "a lot of movement in a lot of different areas and for a lot of different use cases." Though Microsoft has its own computer vision capabilities on its Azure cloud, acquisitions of more focused startups could help with making inroads into certain industries.

Chooch

Emrah Gultekin Chooch
Emrah Gultekin, the co-founder and CEO of Chooch.
Chooch

Valuation: $220 million

San Francisco-based Chooch builds computer vision models for visual detection in industries such as healthcare, media, and retail. Founded in 2015, the startup has raised $25.8 million, and its latest funding was a $20 million Series A led by Singapore-based Vickers Venture Partners last November.

Chooch can be deployed on cloud-enabled devices as well, and also falls into the category of computer vision startups that are applying their technologies for a variety of use cases, as Aragon Research analyst Jim Lundy described to Insider.

Trueface

Shaun Moore Trueface
Shaun Moore, the co-founder and CEO of Trueface.
Trueface

Valuation: $9.7 million

Santa Monica, California-based Trueface uses computer vision to identify faces and objects in video streams. The startup says it has partnered with industry leaders in retail, security, hospitality, and financial technology. Founded in 2014, it has raised $5 million and its last round was a $3.7 million Series A from Lavrock Ventures, Scout Ventures, and Advantage Ventures in 2019.

As with Chooch, Trueface's product aims to apply image recognition technology to enterprise problems, but has a focus on facial recognition. It can also be used in a cloud or on-premise environment, and could augment Azure's facial recognition capabilities — though facial recognition has found itself the target of political scrutiny, with some cities including San Francisco banning the technology entirely

Fervo Energy

Tim Latimer Fervo Energy
Tim Latimer, the co-founder and CEO of Fervo Energy.
Fervo Energy

Valuation: $66.32 million

Berkeley, California-based Fervo Energy develops geothermal energy solutions. Founded in 2017, it uses drilling methods to tap geothermal energy, a renewable energy source. It last raised $11 million in Series A funding led by Oakland-based Congruent Ventures in 2019, and has also been funded by Breakthrough Energy Ventures, the $1 billion clean energy fund led by Bill Gates.

Fervo could help Microsoft's goal of becoming carbon negative by 2030, while also providing the data centers that power services like Azure and Office 365 cheap and abundant power.

The startup was also named one of 46 climate-tech startups VCs told Insider would soar in 2021, and CEO and cofounder Tim Latimer was also named one of Insider's rising stars of clean energy.

"It strikes me that there's some next sustainable energy play that they might want to make, and it just might make enough sense, given how big they are in cloud," Lopez Research analyst Maribel Lopez told Insider. "Solar is kind of tough because I still feel that's moving quite a bit, but I could see geothermal power being something that they could be interested in."

Indegene

Indegene CEO Manish Gupta
Manish Gupta, the CEO of Indegene.
LinkedIn

Valuation: Unknown

Indegene is an India-based company that makes customer service engagement tools for the healthcare and pharmaceutical industry. The company is best known for providing marketing tools for pharmaceutical companies, but also makes tools to manage R&D, patient data, among other things.

In 2017, Indegene and Microsoft announced a partnership that would combine Microsoft Dynamics sales tools with Indegene to create tools for sales and medical representatives to better engage healthcare practitioners.

Given Microsoft's recent interest in the healthcare industry, seen with its acquisition of Nuance, Valoir analyst Rebecca Wettemann said acquiring this type of company would make sense. "They've built out an entire package solution for healthcare and pharma on the Microsoft platform," she said, which means integrating the product would be easier.

JourneyTEAM

JourneyTEAM Milo Tenney
Milo Tenney, the CEO of JourneyTEAM.
LinkedIn

Valuation: Unknown

JourneyTEAM is a consulting partner that helps companies implement and start using Microsoft tools. The company specializes in consulting services for Microsoft Dynamics, SharePoint and Office 365. Acquiring a consulting partner like JourneyTEAM could help Microsoft deliver the capabilities it has been acquiring in healthcare and other industries, Valoir's Rebecca Wettemann said. 

As Microsoft acquires and adds new complex tools for industries, having the expertise to implement it for customers is important, Wettemann said. 

Neudesic

Neudesic CEO Parsa Rohani
Parsa Rohani, the CEO of Neudesic.
LinkedIn

Valuation: Unknown

Neudesic is a technology consulting firm that helps companies migrate to the cloud and implement cloud software tools, and Microsoft is one of the companies it partners with. Similar to JourneyTEAM, acquiring Neudesic would give Microsoft expertise in helping customers move to Azure and implement tools like Dynamics 365, Valoir's Rebecca Wettemann said. 

Clarifai

Matthew Zeiler Clarifai CEO
Matthew Zeiler, the CEO of Clarifai.
YouTube/Tedx Talks

Valuation: $120 million

Clarifai makes an artificial intelligence platform that analyzes images and video. Its tools are also available as APIs for developers to customize and embed in their own platforms and apps. Clarifai's last funding round was a $30 million Series B led by Menlo Ventures in 2016, and it has raised $41.25 million to date.

Given how important Microsoft Teams is to Microsoft's business, it would make sense for the company to look at enhancing it with these sorts of tools, said Valior's Rebecca Wettemann. With all of the video data Microsoft is collecting from Teams, having AI tools to analyze it and organize that data would give them a competitive edge, she said.

X.ai

Dennis Mortensen X.ai
Dennis Mortensen, the co-founder and CEO of X.ai.
X.ai

Valuation: $103 million

X.ai is an AI-powered personal assistant that helps automatically schedule meetings via email. It integrates with email, calendar, and video chat tools from Microsoft and Google, and other productivity tools like Slack or Zoom

It last raised $10 million in funding through a combination of debt and equity in 2017, and has raised $44.22 million to date. The round was led by Pegasus Tech Ventures with participation from Two Sigma Ventures and DCM Ventures.

Microsoft is now on almost every desktop and is going to be challenged by Salesforce acquiring Slack, so acquiring a personal productivity tool like X.ai would help it stay competitive, Valoir's Rebecca Wettemann said. It would be a "broad kind of end user productivity play to enhance what they're doing on the desktop," she said.

Grammarly

Brad Hoover CEO of Grammarly
Brad Hoover, the CEO of Grammarly.
Grammarly

Valuation: $2.3 billion

Grammarly is a product that helps edit documents, emails, and other text for spelling and grammar mistakes. The company last raised funding in 2019 — a $90 million round led by General Catalyst, and has raised $200 million total to date.

It can be used with Google and Microsoft's productivity tools, and is available as a browser extension for Google Chrome and Internet Explorer, or as a desktop app for Windows or Apple computers.

Acquiring Grammarly would be a logical way for Microsoft to enhance its personal productivity tools, Valoir's Rebecca Wettemann said.

Monday.com

Roy Mann and Eran Zinman
Roy Mann, the co-founder and CEO of Monday.com, at left, and Eran Zinman, his co-founder.
Monday.com

Valuation: $2.7 billion, according to Bloomberg

Monday.com is a workplace productivity platform that helps teams manage tasks, teamwork, and projects. It also offers low code and no code tools to help customers create workflows and automate certain tasks.

Last year, the Israel-based company saw its valuation jump to $2.7 billion due to a secondary share sale, Bloomberg reported. Its previous valuation was $1.9 billion, and last raised a $150 million Series D led by Sapphire Ventures in 2019. It has raised $234.1 million to date.

As Microsoft focuses more on collaboration with Microsoft Teams and its Office 365 tools, adding software that compliments that approach would make sense, said D.A. Davidson analyst Rishi Jaluria. "As we head into this very hybrid work future where our workforce is going to be distributed, there's a lot more software tools that enable projects to happen in that collaborative and distributed manner," Jaluria said. "Microsoft doesn't really have a solution in that space right now."

Okta

Okta Todd McKinnon
Todd McKinnon, the CEO of Okta.
Okta

Market Cap: $35 billion 

Okta makes identity and security tools for businesses, and is best known for its "single sign-on" tool that lets users sign into multiple apps with one login. Founded in 2009, Okta saw its business boom during the pandemic as its products became essential for remote workers. It has also been tackling another opportunity in consumer identity tools — an initiative that CEO Todd McKinnon said has the potential to become a big business. 

Microsoft has its own identity tool, Azure Active Directory, that competes with Okta. However, Okta's tool is much more robust than Microsoft's, said D.A. Davidson's Rishi Jaluria.

"I think it would give Microsoft a stronger presence in security than they have today," Jaluria said, while Okta "has more significant developer adoption. It's widely used with Microsoft products."

Twitter

Jack Dorsey testimony.JPG
Jack Dorsey, the CEO of Twitter.
U.S. Senate Judiciary Committee via REUTERS/File Photo

Market Cap: $56 billion

Twitter has come up as an acquisition target before: Salesforce famously pulled back from an attempt to buy the social network back in 2016.

Microsoft's reported interest in Discord, TikTok, and Pinterest shows that the tech titan is interested in using M&A to make headway in the consumer space, said D.A. Davidson's Rishi Jaluria.

Twitter in particular would bring a lot of value to a large enterprise company because it has a large user base and an established niche as a source of breaking news.

"That's the one social media asset out there that probably I think would make sense as part of the larger company," Jaluria said. "That could be Microsoft's big foray into consumer social media." 

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