Dictaphone Corporation acquisition offers L&H resources to establish stronghold in health care solutions

Ieper 08 March 2000Lernout & Hauspie has signed a definitive agreement to acquire Dictaphone Corporation of Stratford, Connecticut, a privately held leader in dictation and telephony call centre recording systems and related solutions. The acquisition of Dictaphone will build L&H's product and management resources and its customer base in the medical dictation arena as well as the telecommunications market. The additional assets from the acquisition should immediately establish L&H as a leader in the health care medical records and information management industry, expedite the launch of a separate entity dedicated to health care solutions and enhance and broaden L&H's offerings for both telecommunications and data management.


The transaction calls for Lernout & Hauspie to acquire all of the outstanding stock of Dictaphone for approximately 4.75 million shares of L&H Common Stock. Dictaphone is controlled by a fund managed by Stonington Partners, a New York private investment fund. Stonington has agreed to hold 2 million of the shares it will receive for a period of two years and has agreed to assign voting rights to these shares during this two-year period to an entity controlled by Lernout & Hauspie. In connection with this transaction, L&H will be required to assume or refinance about $425 million of Dictaphone debt and other obligations. The company plans to use the purchase method to account for this acquisition.

After the replacement of the debt, L&H expects the acquisition to be accretive to its EPS (excluding goodwill). The acquisition is expected to close by the end of April. "Dictaphone had revenues of approximately $350 million for the fiscal year 1999, with EBIT of some $30 million. By combining the two companies, we significantly add to L&H's revenue base while paying about 15% of our current market capitalisation", stated Carl Dammekens, CFO of L&H.

Dictaphone has successfully transformed itself from a maker of stand-alone, analogue recording equipment to a leader in digital dictation as well as call recording systems and solutions for the fast growth telecommunications and health care markets. Dictaphone's revenues in the past have come primarily from North America. L&H expects that going forward its own strength in Europe and Asia Pacific will help increase worldwide sales opportunities for Dictaphone solutions, and that the two companies will combine their assets to create products and services that address new market opportunities.

"As the leader in the medical dictation and patient record management market, Dictaphone Corporation gives L&H instant access to resources which facilitates our launch of an entity dedicated to health care solutions. This should enable us to create an industry leading solution utilising speech and Web technology to reduce transcription costs across the enterprise and effectively manage patient information", commented Gaston Bastiaens, president and CEO of L&H. "Dictaphone's call centre recording and quality monitoring systems will complement L&H's existing focus on the telecommunications market and thus should enable us to leverage our data mining and information management technologies to create novel solutions for this rapidly growing field."

"We believe that tremendous synergies will be realised by combining our two companies, particularly in the technology and geographic market coverage", added John Duerden, chairman, chief executive officer and president of Dictaphone. "We both share a common vision, namely that voice is changing our world, thus creating enormous opportunities to bring effective solutions to market. This acquisition forms the logical next step for Dictaphone and its customers."

"Dictaphone's name and reputation in the voice business have made it synonymous with quality dictation products", commented Amy Wohl, an industry analyst who began her career by following the vendor in the late 70's. "The tremendous synergy that the integration of Dictaphone's reputation, customer base, and physical infrastructure is able to have with L&H's knowledge of the Internet and advanced speech technologies is astounding. Together, they will offer a range of products and technologies that will quickly move the voice industry to its next stages."

L&H has recently announced its plans to create separate legal entities for its Telecommunications & Enterprise Solutions Group, Globalisation and Internet Translation Group, and Health care Solutions Group. With the acquisition of Dictaphone, the company expects to form a powerful Health care Enterprise business group which has immediate access to Dictaphone's large customer base and the opportunity to integrate leading technologies from L&H in order to create innovative health care enterprise market solutions. At the same time, L&H is considering having this Health care unit set up a fully separate entity for Web-based health care market services.

L&H's intended acquisition of Dictaphone will provide it with a wide range of assets with which to further its health care business strategies. Dictaphone's health care market assets include its 5000 medical industry customers worldwide, its 100 sales representatives, its strong national network of technical service representatives, its experienced executive management team and its broad range of solutions for medical industry dictation and data management. Dictaphone is known globally for its medical record workflow systems and its transcription business. In 1999, Dictaphone had health care market revenues of $130 million. Its market penetration is noteworthy: according to industry analysts as many as 400.000 physicians in the United States use Dictaphone to dictate 100.000 hours of dictation each day for clinical record processing.

Dictaphone equally is a leader in the communications recording business, evidenced by its 1999 revenue of more than $100 million for that sector and the industry acclaim, received for two recently announced communications recording products. L&H plans to integrate its data and audio-mining solution with Dictaphone's leading products for telephony and call centre recording and quality monitoring, thus expanding its product offerings and creating a solution which processes recorded speech to identify speakers and topics. L&H's data and audio mining technology allows organisations to more easily and quickly archive, browse and sort audio information from recorded sources, such as telephone transactions.

According to the L&H executives, Dictaphone's products and resources complement L&H's existing businesses and further its strategy in a variety of other ways. Dictaphone's document creation solutions, such as its digital portable hand held voice recorders, transcription job administration and document distribution offerings, are additional resources which should help L&H in the development of its enterprise health care solution. Dictaphone currently sells its offerings to several of L&H's key vertical markets, like medical, legal, insurance, police/public safety, and corporate, giving L&H both an increased customer base and sales force in those arenas. L&H's worldwide reach, particularly its European and Pacific Rim presence, will complement Dictaphone's mainly United States presence, avoiding duplication of sales, marketing and administrative resources.

With this acquisition, L&H has access to an experienced, professional management team that will further strengthen the companies structure. The company expects to retain the Dictaphone management team as well as the company's Stratford Headquarters. "I look forward to working with John Duerden, who is a world-class executive, and his strong management team allows the company to prepare for further growth opportunities", said Gaston Bastiaens, President and CEO of L&H.

Dictaphone Corporation is a leader in the design, manufacture, marketing, service and support of Integrated Voice and Data Management systems and software, including dictation, voice processing, record management and communications recording. Dictaphone's product offerings also include Enterprise Express, a powerful dictation/transcription management software suite, allowing voice to be moved anywhere on the health care network via LAN/WAN or the Internet. Enterprise Express improves the customer's document creation processes by uniting leading edge technologies, such as speech recognition, digital mobile voice recorders, server based dictation, document life cycle management, etc.

In the recording business, Dictaphone offers a wide range of voice recording and quality monitoring systems that it markets to the public safety, financial services and call centre markets, including the two recent important product introductions, the da Vinci and Freedom recording systems. Dictaphone has a marketing, sales, service and support organisation of over 1400 people in 171 cities in the United States, Canada, the United Kingdom, and Germany. The company markets worldwide through a growing number of distributors in Europe, Latin America, Asia Pacific, South Central Asia, the Middle East and Africa. Read more on L&H's policy in the VMW article L&H turns Health Care Solutions business group into separate legal entity status.

Leslie Versweyveld

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