Masimo bewildered analysts with its intention to buy consumer tech company Sound United. But did investors 'sound' the alarm too soon?

Amanda Pedersen

February 18, 2022

2 Min Read
Investor or financial analyst looking at stock market charts with confused expression
Image courtesy of Kateryna Onyshchuk / Alamy Stock Photo

In a move that left some analysts and investors puzzled earlier this week, Masimo said it will pay $1.025 billion to acquire consumer tech company Sound United. The sell-off that followed the news may have been an overreaction, however.

"While we understand investors' consternation over the Sound United deal, we believe that the sell-off was overdone and note that we expect the deal to be highly accretive to [earnings per share], and we believe that investors get a free call option on [Masimo's] consumer pipeline," Mike Matson, a medtech analyst at Needham & Co., said Friday in a report. "Also, revenue guidance appears conservative as [Masimo] laps easier 2021 comps and the expansion of oximetry into lower-acuity settings should drive increased growth."

Matson also noted that an upcoming decision from the International Trade Commission on the company's patent spat with Apple could result in significant royalties for Masimo. That decision is expected by early 2023, he said.

Needham & Co. upgraded the stock to a "buy" rating Friday morning.

Masimo investors 'sound' the alarm

Masimo's stock price nosedived nearly 39% from $228.84 after the company unveiled the Sound United deal on Wednesday morning before ticking back up to $144.62 at market close that day. The stock continued to rebound slightly Thursday and Friday to finish out the week at $154.34.

Sound United is a consumer tech company with a portfolio of headphones and speakers as well as a software platform to connect devices in the home to the cloud, so it's easy to understand why investors and other medtech analysts were thrown for a loop by the cash-plus-debt deal announcement.

As we reported Wednesday, Marie Thibault, a medtech analyst at BTIG and a former MD+DI managing editor was among the analysts who were caught off guard by both the size and scope of Masimo's Sound United deal. The acquisition is much larger than the company's past transactions, she noted, and falls well outside traditional medtech.

"Our understanding is that [Masimo] intends to leverage the Sound United platform, relationships, retail channels, and management expertise to accelerate traction within the consumer channel as the company undertakes the shift from the hospital to the home," Thibault said in a report Wednesday. "We admit we do not fully grasp management's vision on potential new capabilities, market opportunities, and future revenue contribution."

Still, she commended Masimo's willingness to make a major leap to fulfill a multi-year vision and said she understands the company's hesitancy to share more details for competitive reasons.

The deal is expected to close mid-year. 

About the Author(s)

Amanda Pedersen

Amanda Pedersen is a veteran journalist and award-winning columnist with a passion for helping medical device professionals connect the dots between the medtech news of the day and the bigger picture. She has been covering the medtech industry since 2006.

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