Masimo, a market-leading medical expertise firm specializing in monitoring units, misplaced roughly one-third of its market cap on the announcement of its acquisition of Sound United. This acquisition, at a price of $1.025 billion, was instantly accretive to earnings, consistent with the corporate’s long-term 8–10% development fee. Nevertheless, it was a daring transfer for Masimo, because it essentially shifts the corporate’s income and working fashions. Practically half of the corporate’s income now comes from non-healthcare client electronics merchandise. This spooked buyers who have been extra all in favour of Masimo as a pure healthcare play. The corporate justified the transaction by indicating that it brings a powerful international distribution channel to Masimo, as they search to consumerize its expertise, starting with its new biosensing watch. We consider there’s extra to this story, and that this acquisition might, over time, assist Masimo speed up its share of the house telehealth market.
At first look, this can be a lot to pay simply to market a watch.
Earlier this yr, Masimo launched a biosensing watch, W1, on a B2B foundation to sufferers to be used after their discharge from the hospital. The watch is exclusive from present client sensing units as a result of it makes use of the identical expertise that medical suppliers have come to rely on for many years in essential hospital settings for the continual monitoring of a number of well being parameters, together with blood oxygen ranges, pulse fee, and respiratory fee. The corporate claims its watch maintains its accuracy even whereas the wearer is in movement; that is one thing that competing client biosensing units battle to do. Masimo expects to ultimately compete with Garmin and Match, and market the watch rather more broadly to customers—particularly, to health fans who prefer to quantify their self-improvements—and leverage the Sound United international distribution channel and model loyalty to garner curiosity.
Biosensors are essential diagnostic instruments for measuring metrics like blood oxygen, respiratory fee, coronary heart fee, and temperature, and they’re more and more drawing demand from customers. This can be a byproduct of the consumerization of healthcare, one of many themes captured by the HTEC portfolio. Firms like Apple and Google have been rising their give attention to healthcare over the past decade. Likewise, healthcare firms are rising their presence within the client world, and a few are drawing combined reactions from buyers.
We consider the market could also be lacking the larger alternative Sound United brings.
The market indicated its disapproval of the Masimo/Sound United deal by way of the inventory response, with Masimo dropping over 30% of its worth on the announcement. In any case, the corporate isn’t seeking to compete with the large Sensible Watch market, which targets the inhabitants who needs to entry apps on their wrist. It’s seeking to compete with a doubtlessly smaller $1–$2 billion health tracker market. That mentioned, the market is failing to note what Sound United brings to the desk. Past the watch, we consider there may be a good greater “name possibility” on this acquisition—using the tech within the affected person’s house. Sound United has a product below the Denon model known as HEOS, a multi-room house leisure working system that connects to completely different units. We see a chance the place Masimo will join the house medical units to this and primarily activate a complete hospital operation, from distant affected person monitoring to connecting suppliers to sufferers for dwell interplay, no matter which room they’re in. For instance, somebody’s coronary heart fee all of the sudden modifications, and a dwell nurse simply begins chatting with that affected person.
In our view, Masimo could be the expertise chief that takes client and residential healthcare to the subsequent degree. The house telehealth system alternative is estimated to be over $120 billion. Whenever you think about Masimo’s capacity to leverage Sound United to convey extra healthcare to the place the buyer is, the acquisition will get much more attention-grabbing.