Sound United acquired by medical device maker Masimo Corp. as part of a $1 billion deal
RECENT NEWS
Sound United, LLC, a leading provider of high-quality branded loudspeakers and electronics to the audio industry, announced late Wednesday that it has been acquired by Masimo Corporation, a global provider of medical products, as part of of a deal valued at $1.025 billion. The two companies have reached a definitive agreement in a transaction that is expected to close later in 2022.
Learn more about Masimo’s acquisition of Sound United
In an announcement that surprised the industry the most, well-known audio entity Sound United has been purchased by an unknown (to most of our industry) medical device manufacturer Masimo in a one-to-one deal. billion dollars. Few details are included in the initial announcement other than that the two entities have signed a definitive agreement on a deal that is expected to close in mid-2022 (subject to regulatory conditions and “normal closing conditions”) ) .
Sound United, as most Strata-gee readers are well aware, is a portfolio company owned by private equity kingpin Charlesbank Capital Partners. Under their corporate umbrella are major historic audio brands such as Denon, Polk Audio, Bowers & Wilkins, Marantz, Definitive Technology, Classé and Boston Acoustics.
Who is Massimo? From their website…
Our core business is motion-based measurement and monitoring of arterial blood oxygen saturation and low perfusion pulse rate, known as Masimo SET® pulse oximetry, but our product offerings have expanded significantly over the years to also include non-invasive monitoring of blood components, brain and respiration, including Rainbow® Pulse CO-oximetry, electroencephalogram (EEG) monitoring of brain function, respiratory rate, capnography and monitoring of anesthetic agents.
Masimo Corporation website, company profile
Phew! Say it five times faster! The “synergy” between these two companies is not immediately obvious. However, Sound United states that as part of its core competencies, “Sound United delivers significant competitive advantages through its platform advantages, including global distribution across online installation, retail and personalized; a cloud-connected home ecosystem; and a cutting-edge R&D function focused on creating the highest quality consumer products with world-class industrial design.
What seems to have attracted Masimo to Sound United?
Apparently, “the cloud-connected home ecosystem” is an important part of the Sound United offering that appealed to Masimo. You see, Masimo is involved in “hospital and home monitoring” which can take advantage of Sound United’s cloud-connected home ecosystem.
Sound United’s revenue, according to a company profile provided to investors by Masimo, is around $900 million. This means that the transaction is little more than a “one time revenue” calculation. In the private equity world, this is not considered a particularly generous multiple. But again, we have no idea how much Charlesbank originally paid for Sound United.
Masimo’s take on the case
Sound United is a company with a premium consumer technology platform and iconic, universally recognized brands such as Bowers and Wilkins, Denon, Polk Audio and Marantz, as well as an integrated wireless software platform, HEOS, connecting devices and networks at home. The Sound United transaction aligns with Masimo’s priorities, goals and vision by advancing our strategy of enabling connected monitoring both in the hospital and at home. We see significant opportunities for cross-use of technologies, bringing Masimo’s clinically superior solutions to the home and on the go, as well as bringing Sound United’s premium technologies to the hospital to advance our connectivity. automation solutions and our cloud-based technologies. Sound United’s technology and expertise will serve us well as we aim to strengthen our Masimo SafetyNet strategy. Their well-established reputation and in-home presence can help us accelerate the adoption of our portable and integrated home telemedicine solutions.
Joe Kiani, Chairman and CEO of Masimo, Masimo Reports Fourth Quarter and Full Year Financial Results and Announces Agreement to Acquire Sound United
Interestingly, the purchase price of $1.025 billion equates to approximately 83% of Masimo’s total annual revenue of $1.2 billion (2021). Considering that Sound United’s annual revenue is just under $1 billion (~$900 million), it’s almost a merger of equals… revenue-wise.
In fact, Masimo will acquire Viper Holdings Corp., owner of Sound United
However, when it comes to revenue, the story changes significantly. According to Masimo, Sound United earned approximately $125 million in the current year (CY 2021E, adj EBITDA). However, Masimo’s financial report shows a net profit of $229.6 million.
Masimo told its investors that in effect they were acquiring Viper Holdings Corporation, the entity that owns Sound United. They also noted that the company has “top-notch customer relationships” with retailers like Amazon, Costco, Best Buy, Dish and others (see profile picture above).
How will Masimo pay for it?
How will Masimo pay the $1.025 billion to acquire Sound United? They told their investors they would pay for the deal “…through a combination of cash on hand and borrowings under a new credit facility.”
We are excited about this transaction and see significant potential in combining our expertise in consumer electronics and audio engineering with Masimo’s strengths in healthcare and surveillance. With our track record of cutting-edge innovation, best-in-class products and a global distribution network, we are the ideal partner for Masimo to transform the consumer healthcare experience. I look forward to working with the Masimo team to enrich consumers’ lives.
Kevin Duffy, CEO of Sound United
Masimo told investors that Sound United CEO and Chairman Kevin Duffy “and his management team” will continue in their roles with the company after the deal closes, “as well as supporting the Masimo’s consumer healthcare business”.
Little response from dealers so far; GREAT reaction from investors
It’s unclear what Sound United dealerships think of this development – especially in light of the fact that the new owner is outside the industry. I will continue to solicit feedback from across the industry.
And the investors? Well, looking at a chart that’s a mid-day snapshot of their stock performance that I’ve included above, I’d say investors had their own take on this trade. Note that the chart above is from the midday session of February 16, 2022, and the NASDAQ, where Masimo stock is listed, was down roughly 0.05% overall at that time. Nevertheless, Masimo’s stock value plummeted nearly 38% following the announcement of their takeover of Sound United.
Ouch!
What do you think of this case???
What do you think? Does this deal bring in-home wellness products to our traditionally broadcast-focused channel? Or is it something else entirely? Do you have an idea about this transaction?
Leave your thoughts on this offer in a comment below…
Learn more about Sound United here: soundunited.com.
To learn more about Masimo, visit: masimo.com.
Related