Healthcare device monitoring firm Masimo Corp. (Nasdaq: MASI) has often talked about adapting its products for hospitals into use by consumers.
For instance, in the second quarter the company is rolling out its W1 watch, which uses Masimo SET technology to obtain pulse rates, as well as measuring steps and detecting arrhythmias.
That consumer focus was made abundantly clear last week when Masimo announced it would pay a little more than $1 billion to acquire Sound United, a Carlsbad-based maker of audio equipment.
The acquisition caught investors by surprise and hit the market like a ton of bricks as the stock fell 37% on Feb. 16, its largest ever one-day decline since it went public in 2007. The Irvine-based company lost $5 billion of its market cap in one day.
A day after the announcement, Masimo’s shares rebounded about 5.7%.
“So, is this deal crazy? Or crazy like a fox?” Needham analyst Mike Matson asked in a report to investors.
2.3M Boards
Masimo became well-known as a maker of blood and oxygen monitoring devices that hospitals often paid thousands of dollars for. It’s shipped 2.3 million technology boards and instruments in the past decade, including 76,000 in the most recent fourth quarter.
Sound United, founded in 2012 and owned by a private equity firm, makes earphones, amplifiers and speakers under brand names like Bowers & Wilkins, Denon and Polk Audio.
“I have long been a fan (and proud owner) of Sound United’s iconic brands and am honored to steward them through the next generation of technological evolution,” Kiani said.
Not as Smart
On a conference call, analysts appeared baffled that Masimo’s biggest ever acquisition would be a consumer audio business.
“Because I’m not as smart, maybe you can help me better understand how we think about this translating into revenue not in five or 10 years, but in the next couple of years?” asked Stifel Financial Corp. analyst Rick Wise.
“You’re one of the smartest guys I know,” Kiani replied. “But we’re going to stretch our minds and we’re going to stretch yours. I think we’re going to put you not just in healthcare but consumer healthcare.”
Kiani said he bought Sound United for three reasons: its management team; distribution channel at outlets like Best Buy in the U.S. and Euronics in Europe; and the quality of its brands.
“We see significant opportunities to cross leverage technologies, bringing Masimo’s clinically superior solutions into the home and on the go, as well as bringing Sound United’s premium technologies into hospitals to advance our hospital automation connectivity and cloud-based technologies,” Kiani said.
Kiani declined to provide many specific details, saying it might help the competition figure out its strategy. He suggested one of the key areas might be hearing aids.
“As I’m getting older, my hearing is getting worse,” he told analysts. “There’s an opportunity with the Airbuds and the new regulations in the United States regarding hearing aids to really do some cool things in both listening to music and having communication to improving the hearing and experiences of many, many people. And we see that as another large opportunity that we will now better be able to serve.”
Revenue Growth
Masimo is forecasting revenue will grow 8.9% to $1.35 billion in 2022. Kiani, who founded his company in 1989, has previously said he’s not happy unless annual revenue is growing more than 20%.
Sound United will provide a short-term burst in revenue as it generates around $900 million annually.
