Denon/Marantz/B&W: Is Masimo Poised to Sell its Audio Brands?

The future of Masimo’s stewardship over its iconic audio brands is under scrutiny. Masimo has announced a company split that will form a new direct-to-consumer business, Masimo Consumer, encompassing all its audio brands and other consumer products. This move marks a significant shift for Masimo Consumer, which has been a business group within Masimo for the past two years.

The Genesis of Masimo Consumer

The “Masimo Consumer” business unit dates back to the company’s acquisition of Sound United in 2022. This deal brought all of Sound United’s legendary audio companies under Masimo's umbrella, including Denon/HEOS, Marantz, Polk, Bowers & Wilkins, Definitive Technology, and more. If the acquisition caused a little worry among audiophiles, it became a source of consternation within Masimo as it sparked internal divisions. Founder/CEO Joe Kiani, the architect of the deal, found himself in conflict with the board and became embroiled in a power struggle with an activist investor. Finally, an agreement was reached to split Masimo into two distinct entities.

When we initially covered Masimo’s acquisition of Sound United, the potential benefits to Masimo’s core business may have seemed limited. We even speculated that Masimo’s leader Joe Kiani, who is also an engineer, may have been working a complex strategy with the new patented technologies he’d acquired with the new brands. Kiani highlighted the acquisition’s potential opportunities:

“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 the hospital to advance our hospital automation connectivity and cloud-based technologies. The technology and expertise within Sound United will serve us well as we aim to augment our Masimo SafetyNet strategy.”

- Joe Kiani Founder & CEO, Masimo.

Apple Controversy 

One of the most tangible benefits for Masimo from the Sound United deal was access to its audio brand’s global distribution network. The acquisition proved timely for Masimo’s foray into the consumer market. A year later, Masimo’s consumer push escalated into a legal battle with Apple Inc. over the alleged use of Masimo’s pulse oximeter patents in the Apple Watch. While the lawsuit remains ongoing, it has granted Masimo publicity and credibility as a leader in wearable medical monitoring technology. Masimo’s W1 Sport watch, with its heart-rate monitoring and patented, FDA-approved blood-oxygen readings, uses technology that Masimo claims Apple appropriated after recruiting its engineers. Kiani said on a CNBC Business News report:

“They didn’t have to steal our people — we could have worked with them… these guys have been caught with their hands in the cookie jar…”

An Enterprise Prepares for Separation

It will take time for the board and management to evaluate and execute the structure of the proposed separation. The objective is to establish a new consumer-focused company distinct from Masimo’s core medical supply business for hospitals. The desired outcome is better profitability for Masimo by divesting its less-profitable consumer business. According to a statement from Masimo:

“The new consumer company will be completely separated from the main Masimo professional healthcare business and will contain the consumer audio and consumer health products, such as the Stork baby monitor and the Freedom smart watch and band.” 

Kiani faced immediate challenges when he expanded Masimo’s portfolio to include disparate businesses like hi-fi audio and medical monitoring equipment. The struggle was exacerbated by the markedly different profit margins of its new consumer markets, which, while typical for consumer electronics, are much lower than those of a medical equipment supplier to hospitals. Masimo’s new broadened scope skewed the company's finances. The market’s response was swift, as analyst Ted Green notes: Masimo’s stock plummeted by nearly 40% the day the Masimo Consumer business group was established.

“...losing nearly 40% of its pre-deal value. And the value of its stock has never fully recovered.” 

- Ted Green Strata-Gee.

In contrast to Kiani's optimistic outlook on the Sound United acquisition, Masimo investors were skeptical from the outset. Just months after Masimo Consumer was formed, an activist investor emerged, sparking a conflict that is still ongoing. The investor and his supporters viewed the Sound United acquisition as a misstep and waged war against Kiani and his management team, resulting in a reshuffled board of directors for Masimo. In 2023, Kiani commented:

“Well, first of all, I won’t lie, it’s been a rough, rough start with the new board members.”

The creation of the spin-off company leaves Kiani as the chairman and CEO of both Masimo and the new entity, Masimo Consumer. The company plans to finalize the separation as swiftly as possible. Although the process takes time, the spin-off is expected to immediately enhance Masimo’s overall profitability. Investors may find solace in the fact that Masimo’s stock price reached an 8-month high on Mar 23, the day after the split was announced.

The question remains for fans of Masimo Consumer’s many revered audio brands. Is the creation of the Masimo Consumer spin-off merely a necessary restructuring, or does it hint at a potential sale, where Masimo exits the consumer business altogether? Business analyst Ted Green of Strata-Gee has closely monitored Masimo in recent years and suggested in a recent blog post:

“...this may be the first step in an eventual disposal of the Consumer business.” 

These are disconcerting words for fans of Masimo’s stable of audio brands. The implications of “disposal” conjures visions of relinquishing these venerable brands to private equity firms only to have any immediate value wrung out of them like an old wet mop. This scenario disregards the emotional impact these brands hold for anyone who has saved-up money to buy their first pair of Bowers & Wilkins speakers, or spent a sunny afternoon indoors wiring-up a Denon AV receiver. To many of us, these brands transcend numbers on a ledger, they represent cherished memories and important milestones in our lives.

However, in a subsequent post, Green suggested that this separation would be a protracted process and cautioned against jumping to premature conclusions.

Is There a Masimo Consumer Future? 

There are promising signs that Kiani and Masimo aren't planning to sell Masimo Consumer. A sell-off was never mentioned in the Masimo Consumer spin-off announcement. The split is still in the planning phase and Masimo is unlikely to show its hand prematurely. But if Masimo had intended to sell, why would Masimo Consumer include the products it designed, along with the patents that are evidently significant enough to wage a legal battle against Apple?

In a comment on his blog post about Masimo’s announcement Green emphasized that this is likely just the beginning of a lengthy process: 

“The signals I’m reading suggest this is just the beginning of a process that will take some time. Masimo Corp is not packing or packaging their own 'unwanted divisions in with the SU brands' and they are not signalling a sale… For now, the company is simply spinning off the lower profit and troubled Consumer group to prevent any further pollution of the collective financials of the more successful and profitable Professional Healthcare group."

We probably won’t know what the future holds for Masimo's audio brands for some time. But from an audio fan's perspective, they appear to be in good hands in Masimo Consumer with Joe Kiani at the helm, a situation we can only hope remains through the other side of the company's split.

Is the move forced by investors just sound book-keeping or a signal of future sale?  Please leave your comments in the related forum thread below.