Carrying on Speech Vision

ScanSoft Inc. thinks it can make a success with speech recognition where Lernout & Hauspie Speech Products N.V. could not.

ScanSoft, which has developed digital imaging software, last week bought most of the remaining technology business of L&H, which is going through bankruptcy.

For a stock and cash package valued at $39.5 million, ScanSoft, of Peabody, Mass., bought the Dragon NaturallySpeaking speech recognition software, for creating and editing text documents based on speech, and the RealSpeak text-to-speech engine, which can generate human-sounding speech in 19 languages. ScanSoft also got a collection of automatic speech recognition engines for use in cars, audio equipment, climate control devices and e-mail.

Although ScanSoft bought the technologies at what most observers said was a great discount (L&H paid $460 million last year for the Dragon technology alone), meshing the companies will not be easy, they said.

“This requires a lot of [research and development],” said Donald Newman, an analyst at New York-based Ladenburg Thalmann & Co. Inc. “The management of ScanSoft may not have any experience [with voice recognition software]; they dont know the answers to obvious questions.”

ScanSoft CEO Paul Ricci is confident his team can integrate the companies. While short on product specifics, Ricci said ScanSoft will retain about 150 L&H employees and continue development in L&H offices in Burlington, Mass., and Ieper, Belgium. Ricci plans to leverage the complementary sales and marketing channels that ScanSoft and L&H share.

L&H filed for bankruptcy protection in the United States and Belgium and removed its top executives, including founders Jo Lernout and Pol Hauspie, last year. The company later admitted that it had faked millions of dollars in revenue and would restate its financials for 1998, 1999 and 2000.

Despite these disruptions, many observers believe there is still a lot of value in L&H. As proof, Ricci said the company has continued product development even in the midst of bankruptcy.

Last month, L&H announced the release of PDsay, a new product for reading e-mail and other data on a personal digital assistant, and an enhanced version of its RealSpeak text-to-speech engine for Cantonese Chinese.

Earlier, L&H released Version 6 of its Dragon NaturallySpeaking Solution Series, which provides both voice-to-text and text-to-speech capabilities, as well as Web navigation by voice.

“The [L&H R&D] teams have remained largely intact; theyve maintained product schedules,” Ricci said.

Other L&H businesses that were sold at the bankruptcy auction included the following:

• The automated speech recognition technologies of L&Hs Interactive Systems Inc. division will be acquired by Multimodal Technologies Inc. in a deal valued at $4 million.

• L&Hs Intelligent Content Management assets and its Knexys division will be acquired by Vantage Technology Holding for $2 million in cash.

• The Audiomining audio search engine technology will be acquired for $750,000 in cash by Dragon Catalyst LLC.

The sale of the assets is subject to final approval by the U.S. Bankruptcy Court in Delaware and the Ieper Commercial Court of Belgium.