Over the weekend, Bloomberg reported that Microsoft is in advanced discussions to obtain voice recognition leader Nuance Communications (NUAN) for $56 per share. Earlier this morning, those rumblings were confirmed after companies revealed that a deal was signed at that price in an all-cash transaction valued at almost $20 billion. At $56 per share, Microsoft is spending a 23% premium to last Friday’s closing price for NUAN. That’s a healthy increase, but we see the price tag being quite reasonable. Based on current analyst expectations for NUAN, the software behemoth is paying around 10-11x forecasted FY22 revenue. In today’s climate, it’s usual for a cloud software stock to trade a P/S north of 20x.NUAN’s recent financial performance and growth don’t necessarily license a sky-high valuation, but the arrow is pointing up as the company finalizes its transition to focus on cloud-based healthcare offerings. Over the past few years, NUAN has trimmed its portfolio, depriving its medical transcription and EHR services business, its imaging division, and its automotive AI unit, among others. Simultaneously, the company has been adjusting its client base away from on-premise products toward cloud-based systems, creating a more solid recurring revenue business model in the process.