The Sad Fate of a Great Company

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The New York Times‘ Loren Feldman has a great story on the lawsuit that Jim and Janet Baker, founders of voice-recognition pioneer Dragon Systems, are pursuing against Goldman Sachs, which advised them when they sold their company to Belgium-based Lernout & Hauspie:

And yet, even today what happened next to the Bakers seems remarkable. With Goldman Sachs on the job, the corporate takeover of Dragon Systems in an all-stock deal went terribly wrong. Goldman collected millions of dollars in fees — and the Bakers lost everything when Lernout & Hauspie was revealed to be a spectacular fraud. L.& H. had been founded by Jo Lernout and Pol Hauspie, who had once been hailed as stars of the 1990s tech boom. Only later did the Bakers learn that Goldman Sachs itself had at one point considered investing in L.& H. but had walked away after some digging into the company.

I’m not an expert on mergers and acquisitions and don’t have an opinion on the quality of Goldman’s advice. But I remember feeling uneasy about the Dragon sale at the time, and I wasn’t particularly surprised by the collapse of Lernout & Hauspie, an outfit whose specialties seemed to be generating hype and buying up other speech-technology companies.

At the time, Lernout & Hauspie’s implosion felt like a catastrophe not just for the Bakers, but for voice recognition in general. Dragon’s technology was that important.

I happened to be visiting a company called ScanSoft on the day when it successfully bought the remnants of L&H–the Dragon products and technologies–for a fire-sale price. It later changed its name to Nuance and has flourished; it deserves credit for helping to bring Dragon to a never-ending array of devices and millions of people. But I’m still sorry about what happened to the original Dragon Systems and its founders.