Irvine, California-based Masimo announced in February that it would spend $1.025 billion to acquire Viper Holdings, the parent company of Sound United. Wall Street’s response saw Masimo’s stock drop by 35%, with analysts unsure about the consumer tech acquisition, saying it left them with “more questions than answers.”
However, the market quickly reconsidered its position on the acquisition, as Masimo’s stock climbed over the following days, with Needham analyst Mike Matson saying the sell-off was “overdone” and the deal is expected to be highly accretive to Masimo’s earnings per share.
In response to today’s announcement, BTIG analyst Marie Thibault wrote that investors’ focus revolves around “gaining clarity around the combination,” including the key areas of product innovation, the investment needed and how soon new products can drive growth.
Additionally, analysts believe investors would like to know how supply chain issues could impact performance as they await more details before determining Masimo’s position. Masimo said in a news release that financial guidance associated with the acquisition will be provided during the company’s first-quarter earnings release on May 3.
Shares of Masimo were up 0.7% at $140.67 per share in mid-morning trading today.
“We are thrilled to add Sound United’s premium technology, established consumer channels, and well-known brands to Masimo’s broad portfolio of hospital and home medical technology solutions,” Masimo founder and CEO Joe Kiani said in the release. “We believe Masimo’s expertise in advanced signal processing, biosensing, and photonics technologies combined with Sound United’s audio and home automation technologies will bring about natural and yet non-intuitive solutions to people around the globe in home and in hospitals. Masimo will leverage Sound United’s expertise across consumer channels to accelerate distribution of the combined company’s expanding portfolio of consumer-facing healthcare products.”
In connection with the acquisition, Masimo entered into a credit facility for an unsecured term loan of $300 million and $500 million in unsecured revolving commitments with an option (subject to certain conditions) for Masimo to increase the aggregate borrowing capacity by an additional $400 million, plus additional unlimited amounts if certain incurrence tests are met.
The facility also provides a sublimit of up to $50 million for the issuance of letters of credit. All unpaid principal under the credit facility will become due and payable on April 11, 2027. Proceeds from the term loan have been used to consummate the merger, while proceeds from the revolving commitments are expected to be used for general corporate, capital investment and working capital needs.
The acquisition will result in Sound United operating as a division of Masimo under its existing leadership, with CEO Kevin Duffy leading the unit as president of Masimo’s consumer division.
Sound United will continue at its headquarters in Carlsbad, California, as it operates consumer brands including Bowers & Wilkins, Denon, Polk Audio, Marantz, Definitive Technology, Classé and Boston Acoustics.
“While we continue to identify growth opportunities by leveraging the strengths and resources from both companies, we want to express our continued commitment to our loyal customers who rely on the Sound United brands to continue driving their businesses with best-in-class solutions and forward-thinking innovation,” Duffy said. “With our track record of industry-first innovation, superior manufacturing, and a global distribution network, we are confident that Sound United is the ideal partner for Masimo as they transform and enrich the consumer healthcare experience.”