Medical Tech Firm Masimo Sees Sound United Buy as 'Immediately Accretive'

Healthcare device company Masimo’s buy of Sound United (see 2202150076) will be an opportunity for future products it’s creating for hospitals, but the immediate benefit will be “beneficial to our push into consumer healthcare,” said CEO Joe Kiani on a Tuesday earnings call.

Masimo announced Tuesday an agreement to acquire Viper Holdings, parent company of Sound United, owner of Bowers & Wilkins, Denon, Marantz, Polk Audio, Heos and other audio brands, for $1.03 billion. Masimo is projecting 2022 product revenue of $1.4 billion, which doesn’t include the impact of the Sound United acquisition, said Chief Financial Officer Micah Young. The transaction is expected to close near midyear, subject to conditions. Masimo expects the acquisition to be “immediately accretive and to support our long-range revenue growth target of 8% to 10%,” Kiani said.

On the call, Kiani made the first reference to the Sound United purchase after commentary on an upcoming release of a wearable that monitors oxygen saturation, pulse rate and respiration rate, detects falls and captures electrocardiogram signals and arrhythmias. He said Sound United is a company with a “premium consumer technology platform," spotlighting its high-profile brands and the “integrated wireless software platform Heos,” which he noted connects “devices and networks in the home.”

Equally important, Kiani said, Sound United “has an excellent team of leaders, engineers, manufacturing and supply chain experts, and highest ability consumer electronics.” The healthcare company sees “significant opportunities to cross-leverage technologies,” bringing Masimo's offerings into the home and on the go, while bringing Sound United's technologies “into hospitals to advance our hospital automation connectivity and cloud-based technologies.” Sound United’s technology and expertise will “augment our telehealth and telemedicine strategy,” Kiani said. It will leverage the audio brands’ “well-established reputation and presence in the home” to “accelerate our success in gaining adoption of integrated home-based telemedicine solutions, first with the Masimo Watch W1,” he said.

Sound United will “unlock access to large, well-established consumer channels,” giving Masimo “immediate scale with leading retail establishments" including Best Buy in the U.S. and Euronics in Europe, he said. He praised Denon and Marantz as being 100-year-old and 50-year-old brands -- and Bowers & Wilkins and Polk for their strong presence in the U.K. and U.S. -- but Kiani zeroed in on Heos for its connectivity capability. He commended Sound United CEO Kevin Duffy and the Sound United team for their expertise in developing distribution channels, saying they can help with the launch of the W1 wearable “and other products that are coming.”

Kiani also cited an opportunity in the true wireless earbud space, based on “new regulations in the United States regarding hearing aids to really do some cool things in both listening to music and having communication to improve the hearing and experiences of many, many people.” Masimo has been working internally on such products, “but now with Sound United, we can hopefully accelerate them and reach a broader audience more rapidly.”

The executive pegged privately held Sound United’s earnings before interest, taxes, depreciation, and amortization at about $125 million, and revenue at about $900 million. The audio company grew double digits in 2021, exceeding historical growth rates, said Young, but Masimo is projecting a long-term growth rate of “high single digits,” he said. Sound United technologies “are very valuable for things that we want to do in the hospital and as we look to advance our hospital automation connectivity and cloud-based technology,” he said.

On why Masimo chose Sound United vs. another audio company, Kiani cited the channel and management team: “I could not think of a better company for us to acquire given how we envision the future.” On potential risks associated with the acquisition, Kiani said, “If we don’t keep the management team, if we lose some of the key people that we want to keep.” Sound United executives weren’t available for comment Wednesday and referred us to news releases of the announcement and the Masimo earnings call.

Commenting on the “COVID bump” that Sound United experienced due to stay-at-home trends during the pandemic, Kiani said Masimo is “comfortable with it.” He noted Sound United management hasn’t seen a slowdown. Though Sound United is bullish that the bump isn’t going to end, Kiani said, “we’re being more conservative,” envisioning “maybe a little slowdown right after COVID.”

In connection with the Sound United buy, Masimo envisions expanding its business and product strategy “to additionally focus on personal consumer products to integrate with our successful medical technology businesses,” said the “risk factors” section of the company's 10-K filed Wednesday with the SEC. “We do not have significant experience with consumer hardware products, which may adversely affect our ability to successfully develop and market these products and technologies and integrate them with our existing products and platforms.”