Why did a publicly-traded medical products company spend $1,000,000,000 to buy a bunch of audiophile and home theater brands? Many were left asking that question when the deal went down back in February of 2022. The short answer to an odd question was that Masimo needed Sound United’s HEOS technology for suitable wireless connectivity for their medical devices. Couldn’t Masimo have done a less expensive licensing deal with Sound United? Assuredly, they could have done just that, but by buying up all of the pieces of Sound United, Masimo was able to actually own HEOS, which has provided a way-beyond-Powerball-level future payday for the company. You see, Apple “borrowed” (OK, stole) the technology and has now lost a gigantic lawsuit over the matter. Masimo is going to get untold billions of dollars in punitive damages, past residuals and future payments from Apple, which is trying to delay, delay, delay their payments.
Seemingly, turning a billion-dollar investment into upwards of 50 times more money should earn Masimo CEO Joe Kiani the clubhouse lead for 2024 CEO of the Year. In reality, making his investors untold billions of dollars from Apple in a pending legal judgment got him a nasty shareholder revolt, and now he’s overseeing one of the most sad-sack sell-offs of brands in consumer electronics history. What Masimo has done to the Sound United brands is nothing short of professional malpractice. They’ve unfortunately pulled back on their once-significant PR efforts. They’ve additionally slashed their marketing and advertising at a time when they need to show their media partners that the ship is stable, even if it is not. They’ve ceased doing in-house press events that created tremendous goodwill in the media. Masimo didn’t show up at the AXPONA audiophile show in Chicago (beyond ads on some first-floor windows) and had close to zero presence at the Munich audiophile show weeks later. Worse yet, Masimo has literally destroyed the audiophile electronics brand Classé. The Montreal offices are now closed and the engineers are gone. Before that, Masimo decided to fire one of the industry’s finest executives for not “selling enough,” when the reality was that Masimo couldn’t manufacture a component for Classé to sell. Hard to make your numbers when there isn’t a product to sell, right? The head of Classé was let go, was quickly snapped up to run T+A, and that company is now gaining dealers hand over fist in the United States market. Great way to treat your talent, Masimo … That’s not like when Edmonton traded Wayne Gretzky to the Los Angeles Kings in 1993. This move by Masimo is more like just putting The Great One on unconditional waivers without getting any picks, prospects or players back in return.
So, the question isn’t if Masimo is selling off their AV brands, because they’ve made it clear that they absolutely are moving the Sound United assets under investor pressure. Who’s going to buy the brands is the question. We’ve heard some rumblings and we want to share. We invite you to join in via our moderated comments below.
Who is Going to Buy Bowers & Wilkins From Masimo?
The company that has its products used as the reference loudspeakers at Skywalker Ranch and Abbey Road Studios and is also found in cars like BMW, Volvo and McLaren, is the brand that is most likely to get spun off from the Sound United portfolio. It is stable company that has had bad ownership since its sale from its longtime owner to Ava Automation in 2016, a Silicon Valley-backed tech company that thought they could turn the speaker company into an “HD Video Sonos” (and failed). Sound United did much better with buying Bowers & Wilkins in 2020, but they didn’t have long until Masimo came in. At first, Masimo loved the consumer electronic sales bump that was felt from the pandemic, but when supply chain and viral issues settled down, the shit hit the fan for the Masimo brands, thus leaving Bowers & Wilkins an audiophile speaker jewel waiting to be added to somebody else’s collection
We’ve heard talk of other speaker companies being interested in Bowers & Wilkins. One from Germany has been mentioned a few times as a possible suitor. VOX, the parent of Klipsch, could be a possible suitor if they could get the bank financing, as they’ve not been killing it with their current consumer electronics brands and their “we don’t need marketing” policies. The best possible buyer for Bowers & Wilkins would be former owner Joe Atkins. Joe would return sanity and stability to the company, and has the money to pay pennies on the dollar to save his baby from massive corporate neglect and abuse. Would he want to do it? That’s the $40,000,000 question (because that’s the price that it might sell for – not $120,000,000 like the last time with Eva).
Who Will Buy Denon and Marantz?
Denon and Marantz are very similar brands that have been together for a while, and represent the some of the best mainstream consumer electronics gear in the business. You can’t have a conversation about an AV receiver without Denon or Marantz. They both also make rock-solid audiophile products, which are universally well-respected and well-reviewed.
Historically, these brands have been owned by private equity and, with the big dollars that they rack up in overall sales, as well as wide distribution in Best Buy, Magnolia, every meaningful catalog store, Amazon, custom installation channels and beyond, Denon and Marantz are tempting but expensive assets. Could another private equity firm come in and buy up Denon and/or Marantz? That feels like the most likely outcome. Just remember that they won’t care about the people, product or industry when they come in, as they serve masters that demand 15 percent yearly returns and a 100 percent flip on the companies in five years – without exception and damned be the consequences. You gotta love finance people, right?
So, who has the money to buy Denon or Marantz (or both)? How about a sleeper pick in SVS?Imagine Denon paired with SVS’s newly redesigned speakers and subwoofers. That would be a mighty combination that consumers and the industry alike would love. SVS is very well-managed and has superior marketing that would, without question, help the brand. Want a real outlier option? How about a return to the consumer electronics market by Oppo Digital? While they bailed on making silver disc players years ago, they are an Apple-like player in the global cellphone market. Buying Denon would put them right back into the consumer electronics space with far more diversity, better distribution and-and-and …
Who Might Buy Polk and/or Definitive Audio?
How could speaker brands that are this legendary get this mistreated? In this era, Polk Audio should be more on par with Bowers & Wilkins, but it isn’t. They need an updated product line. They also need a new marketing strategy. They need more PR love than is budgeted for. They basically need everything for future success in these current channels. Definitive Technology needs all that Polk does and more, but they both have great brand equity and some hot (current) designs, as well as fantastic distribution.
The co-founder of both Polk Audio and Definitive Audio is Sandy Gross (as well as GoldenEar, which recently sold to AudioQuest). To this day, Sandy is friends with Matthew Polk, and I could see the two of them putting together an investment group to buy back Sandy’s first two speaker companies at pennies on the dollar. The trick will be finding the bank or partner who brings enough money to the table as these brands aren’t likely to be easy to acquire. That’s not to say a bank couldn’t step in, especially with well-qualified investors like Sandy in the game. Other players that might want one of these brands could be SVS (again, to market their speakers as they grow in that category) or any electronics company that needs traditional speakers to co-market with. MoFi just bought turntable company, Music Hall, which is a tiny deal in comparison, and they have their own speaker line, now designed by Andrew Jones, but Andrew could design some pretty tasty Polks. So could a return from Matthew Polk with a new owner … as it is not an impossible outcome.
What the Hell to Do with Classé Audio?
This is one of the worst dumpster fires in audiophile history, and Masimo should be most ashamed of this shit-show by their executives in charge here. We covered what they did to the executive that ran the brand. We covered the fact that they don’t have their traditional Montreal design resources that have been in place for a generation. They make three products, and they are very good, as I’ve reviewed the Classé DELTA Pre (read the review) and the Classé DELTA Stereo Amp (read the review), but they are expensive, and the brand is too close to being bankrupt for smart audiophiles to invest five figures into their products. Dealers aren’t lining up to sell the products, either, which is a stark contrast with the Magnolia/BestBuy/CI/online and brick-and-mortar dominance that Bowers & Wilkins, Denon, Marantz, Polk and Definitive Technology enjoy today.
As a comp, conjecture is that (it was a private sale) tube electronics company Audio Research sold for well under $1,000,000. ARC then got its line of credit pulled unexpectedly, and that investor, a very nice guy, got epically hosed. The new industry-savvy and well-heeled owner bought in and is keeping things moving forward. What would Classé be worth? $100,000? $200,000? Not much. Who would buy it? At those prices, what about one of the better new-school Class-D companies? Emotiva reportedly wants to sell their company for big money, but they don’t have the gravitas to get the number that they are supposedly asking for. Perhaps a revamped Classé would add to that number. Perhaps Classé just flies to the audiophile junkyard in the desert and waits for somebody that needs the parts while baking in the sun? That’s sadly the most likely outcome for a once mighty and well-managed audiophile brand.
Why Not Sell All of the Sound United Brands to Apple?
This rumor surfaced a few weeks ago and was reported on widely. It just doesn’t seem plausible, but you never know. If there really is a hard cut-off for an end-of-year sale and none of the above options are looking viable, perhaps taking a fraction of the Apple judgement upfront and all in cash for all of the Sound United brands might make sense. What doesn’t make sense is why Apple would want to be in the electronics business. It is easy to see how being in the headphone business has been a genius idea (look at Sony imitating the move by acquiring Audeze), but what do you do with these other brands? They don’t need them. Sonos? That would be a different conversation, as Apple would crush it with Sonos under their umbrella, but none of the Sound United brands are really Sonos (even with HEOS). They just aren’t.
Final Thoughts on What Masimo Should Do Next …
This entire process has been a total unforced error from day one. The bad PR for Masimo Corporate has seemingly hurt their stock price when the pending Apple money should theoretically be running the stock up. Masimo still owns the Sound United assets/brands, but they’ve foolishly devalued those brands at the worst possible, most irresponsible time. They can expect a fraction of their investment money back from the $1,000,000,000 that they spent, but that’s not a loss, as the Apple judgment is so much larger that they should be thrilled at the outcome of the deal.
In an odd way, this reminds me of the dotcom-era billionaire who bought Cello from Mark Levinson in the mid-1990s. He invested wildly in real estate for the retail showrooms, opened Cello-themed celebrity restaurants, and then closed nearly everything down after only a few years. Mr. Adams made a fortune on the real estate and the restaurants, but the concept of a national chain of uber-high-end custom installation companies merged with an audiophile store was a bit of a stinker, so he quickly killed it off. Let’s be clear: Masimo isn’t going to kill off any of their brands beyond what they’ve already done to Classé, which might not be fixable at this point, but they are going to be lucky to get back a fraction of what they paid. The sooner that they rip the band-aid off and get back to their core business selling bandages – the better off everyone in the deal (Masimo stock, Masimo employees, dealers, consumers and beyond) will be.
Who do you think will buy some of the Masimo brands? Do you have a take on who could take on such a deal? Be sure to explain why and how in the comments below. As always, we love to hear from you.
It’s a shame, Masimo has some iconic brands there. Brands I’d hate to see wrecked. I believe the real issue was Masimo being divided on the decision to buy the Sound United brands and we know what they say about a house divided against itself. Those in the company who opposed the purchase were fools not to at least support the brands to get a return on the investment.
They likely will lose money on the Sound United buy if you just look at it from that angle.
If you look at the value of the Apple judgment, buying Sound United was a BRILLIANT MOVE by their CEO. Yet, he’s getting hibachi-ed by angry shareholders. It doesn’t seem very fair but I guess all things aren’t fair on Wall Street.
For your correction: Masimo brands participated in AXPONA 2024 with a listening room and also in the Ear Gear Experience.
Must have been a dealer room. I didn’t see Andy Kerr or Phil Jones or ANY of the marketing people from Masimo.
They were likely in retreat mode but couldn’t bail on your contract. Thank God for that – for you.
Masimo had NO PRESENCE weeks later in Munich.
If it were me and I needed to spin the brands off, I would have made more of an effort in hopes of not getting pennies on the dollar but then again the money people have spoken and the beans MUST BE COUNTED even when in the end – they could likely to lose their shirt on owning these brands.
Yeah, the B&W folks were at AXPONA 24, but I had specifically asked where were the Polks, and any other of the brands at AXPONA. They explained that they had to work with the limited budget/space constraints and couldn’t necessarily support the whole range of SU products. They were showcasing the B&W. I also took a 2min39sec video of these playing Pete Townsend’s “Eminence Front”
Where were the Masimo staff? Where was Andy Kerr (the head designer)?
Where was Marantz?
Anybody wanna talk about what they did to Classe? I just talked a brain surgeon OUT of buying a Classe DELTA amp for a Pass as Classe is basically out of business (not quite but) now. Their stuff is good. I reviewed it. Too expensive. Very heavy but good. But all of the people in Montreal are gone from what I know. They got rid of the head of the brand because he didn’t “sell enough” mainly because Masimo couldn’t make the gear at all. That was a terrible, unforced error and what I am talking about in terms of their gross mismanagement. Multi-billion dollar companies can stick with a project long enough to actually ship the products.
They were also present in real force at the Montreal and Toronto Audiofest.
This is certainly food for thought. How many corporations have messed with our brands, creating passionless “spreadsheet companies” that pound their executives for numbers rather than a crescendo of lasting growth and quality products? For years, our precious few independent audio dealers relied on these brands for income based on solid engineering and great marketing, driving customers to their stores. Let’s hope for fewer egos with arms buying these brands and a few more music-loving leaders.
The pressure on public companies is EVER PRESENT and often inspire stupid decisions. I learned this working for one. Eye opening stupidity. Masimo has done the same.
Dealers would be well-served selling the Sound United brands. I know I would if I was in the retail space but their current, terrible pull-back from the market while selling off the brands, would cause me serious concern.
If I did what you do for a living, I would be after EVERY SINGLE ONE of those dealers with different brands that don’t suffer from such Wall Street and shareholder-based problems.
Thanks for the great advice. Will do!
How about Best Buy or Crutchfield?
These two companies carry many of the Sound United brands. I think both companies have the money to do so—and at a bargain price. This would be vertical integration at its finest, assuming Best Buy or Crutchfield would manage each brand’s continued innovation correctly, which is a big if.
I am not sure why the retailers would need it.
Then again Masimo didn’t need to OWN Sound United to get HEOS.
So who knows?
The audio equipment industry is somewhat unique. Clearly, it is ill-suited for public ownership, which demands increases in revenues and earnings per share on an annual basis. These days, as Jerry points out, private equity firms face even more onerous demands from their limited partners for tremendous gains from those funds’ portfolio companies.
If one looks at nearly all of the successful companies in this sector, they are managed/owned by the person who founded it. When that individual retires, wants out, or dies, and the continuity of ownership is disrupted, his or her company eventually fades away in most cases. Of course, there are exceptions. Dave Wilson’s son took Wilson Audio over, and that company is more successful than ever. YG Acoustics seems to be thriving under the ownership of LK Capital.
It seems to me that the most likely salvation for these high-quality audio equipment companies that require successor ownership is for them to be acquired by ultra-wealthy individuals. Perhaps the ideal example is the purchase of Steinway by the billionaire, John Paulson. There are, of course, other examples such as the acquisition of Rockport by Josh Clark. The underlying premise of the successor owner is that the economic return is not the primary motivator; instead, a continuation of a dedication to excellence is.
Perhaps such an individual will be the savior of Classe (and, frankly, now Krell, too). But it will be hard to find that sort of person.
I know Josh Clark and he’s no billionaire (there are only 1000 of them in the US and 2,800 in the world that is populated with 8,100,000,000 people thus not many Billionares.
The scandal with Josh was that he was “groomed” (I am not sure you can use that word anymore but you get my point) to take over Transparent Cable and he went a different path. I think he’s rocking it at Rockport now from what I could tell from our last conversation.
Jim Swantko has some of their modern speakers. He’s reviewing them now. Nice. Expensive however. Stay tuned in the fall for that review!!! 🙂
The first 2 paragraphs of this article indicates that you are woefully ignorant of the basic facts surrounding Masimo’s beef with Apple. From what I can gather you seem to think the Masimo v Apple suite is over the HEOS technology Masimo acquired via the SU acquisition. This is not the case. The lawsuit in question is associated with Masimo’s assertion that Apple violated Masimo’s patents and and misappropriation of Masimo’s trade secrets that cover Masimo’s pulse ox technology, all of which existed well before Masimo’s acquisition of SU. The lawsuit has zero to do with HEOS.
I am aware of all of that.
Did you read the article?
I did read it. In fact, I read it again. Did you read my comment? Maybe you should go back and read the first paragraph. What lawsuit are you referring to that Apple “just lost”? 1:22-cv-01377?
The suit where Apple stole Masimo’s technology for the watch.
That would be 1:22-cv-01377. Now explain to me how 1:22-cv-01377 bears any relation to HEOS…
I was wondering why Classe had dissapeared from the landscape. I have owned their gear for years and its quite sad to hear their fate. Wouldn’t be the first time this has happened but, wow! Masimo clearly did not understand what they had.
Are you my old writer, Tim Hart, from Nor Cal? Bryan Southard’s friend?
I am.
https://www.medtechdive.com/news/masimo-offer-consumer-business/720807/
Here is a story saying that Masimo has an offer from an UNNAMED party for less than they paid but close enough to a billion to make them whole again.
I estimate Sandy and Mathew’s age at around 77. At that stage of life, I question if they really would want to get back into the game. Joe is about 10 years younger and a very astute businessman. If he asked me for my council, which I did for 14 years, I would inform him that the global market has significantly changed since he sold B&W and if he would consider coming out of retirement that he limit an acquisition to only B&W. As for Apple, they would be better off acquiring Sonos! While the move would be more expensive, the ROI and fit would be far greater. In my opinion, The Masimo acquisition of Sound United was a poor business and strategic decision.
Peter,
Thanks for chiming in. I am not sure how many consumers know how many AV companies that you’ve run over the years but your input is very valuable!!!
🙂
Jerry
B&W clearly is the crown jewel within Sound United. I would assume B&W’s EBITDA exceeds the combined earnings of all their other brands!