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this is the craziest story ever in April
00:00:02
of
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2022 masimo Corporation bought sound
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United sound United includes Brands all
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the ones you all know like morance
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Bowers and Wilkins denen pulk definitive
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Technologies and a whole bunch of other
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ones too for the eye watering sum of one
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billion dollar actually is over 1
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billion it's like 1.025
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billion dollar and what followed was a
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dumpster
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fire I don't want to spoil it but the
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founder and CEO is not there anymore
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this story includes crazy things like
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activist investors it includes Bob
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chapek from Disney the former CEO
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there's also an ongoing legal battle
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with
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apple this story is packed with juice so
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sit down grab a cup of coffee and let's
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talk about the billion dooll blunder
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that was morance and Denon the purchase
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of them for this company
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[Music]
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mhm okay so to understand mimo
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Corporation buying sound United first we
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have to understand what sound United is
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2012 is when sound United was born
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created and it was created by what Ken
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Duffy Kevin Duffy 2016 they acquired
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Definitive Technology and whatever other
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brands they had 2017 Bots DNM Group
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which includes Brands like Denon morance
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and Boston Acoustics does Boston
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Acoustics make anything anymore put it
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in the comments if you know about Boston
00:01:52
Acoustics I haven't heard about them for
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a long time 2018 they bought Class A
00:01:56
which I don't think does Much Anymore
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2020 they expanded into the luxury
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Market with Bowers and Wilkins a British
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company famous for its high fidelity
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speaker systems in 2022 masimo buys
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sound United now we think about a
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billion dollars and we're just like oh
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my goodness everyone made out like
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Bandits but we don't know how much sound
00:02:20
United paid for
00:02:22
d+m or for PK or for any of these Brands
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they could have paid a significant
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amount of money because 2012 than were
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worth a lot and then all of a sudden
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they weren't worth a lot from the
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standpoint of like audio Brands and
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stuff like that sound United was not
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just Kevin nuffy though there's a whole
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bunch of other investors in there too
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Charles Bank Capital Partners LLC Boston
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based private Equity Firm nothing says
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success like having a private Equity
00:02:51
Firm own you for a while and then they
00:02:53
strip mine you mhm they cut a bunch of
00:02:55
people they make ve very very profitable
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and then they sell you to a place like
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masimo Corporation also triple five
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Madison investors or 555 American
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Capital Bank of America actually owned a
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piece of sound United I guess how would
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you feel if you're Bank of America and
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you're like you're connecting now to
00:03:16
sound United and it was just some dude
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with a credit Bank of America credit
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card and then Hudson Valley Bank okay
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okay so each one of those companies
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benefited profited from the sale of
00:03:27
sound United since this was all private
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Equity though have no idea what their
00:03:31
overhead was so we don't even know if $1
00:03:32
billion was a good deal or
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not masimo Corporation was founded by
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Joe keani and I could be mispronouncing
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these names Joe keani was I think an
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Iranian immigrant and he got a $40,000
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loan and in 1989 he started mimo
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Corporation out of his garage of course
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he did out of his garage in Irvine
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California focusing on creating
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Innovative Medical monitoring
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Technologies his initial breakthrough
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was the masimo SE signal extraction
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technology sounds a little bit invasive
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But the irony is it's not invasive his
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vision led to the development of
00:04:13
numerous products improving patient
00:04:16
safety including the
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radical-7 it's a strange name for a
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product which allowed for non-invasive
00:04:23
hemoglobin measurement masimo went
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public in 2007
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we have to understand something about
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mosimo Corporation there's two sides of
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the company there's the health care side
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and then there's the consumer side sound
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United fit into the consumer side or
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what I like to call customer number one
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expanding consumer customer channels
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masimo aimed to leverage sound United's
00:04:52
wellestablished consumer channels to
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accelerate the distribution of mimo's
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expanding portfolio of consumer products
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like the mimo W1 basically a smartwatch
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that does stuff like the Apple watch
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does it's a little foreshadowing Apple
00:05:08
watch you can actually go and buy the W1
00:05:11
right now if you want to it's a smart
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watch that includes continuous Health
00:05:15
monitoring features like blood oxygen
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levels heart rate and other parameters I
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wonder what those other parameters are
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like how quickly the hair on your arm
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grows maybe if you're depressed or not
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how would that be but I if I had a watch
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that told me if I was depressed or not
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it would be going off all the time beep
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be beep the consumer brand also has the
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stor baby monitor it's designed to
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monitor infants Vital Signs like oxygen
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saturation pulse rate and skin
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temperature offering parents Peace of
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Mind through realtime Health Data that's
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pretty cool actually so they wanted to
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tap into retail markets like Best Buy
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and euronics which is in Europe I guess
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so the theory is they wanted to buy
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sound United to get access to all the
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retail channels I don't know man
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a billion dollars you could you could
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hire a lot of people for a billion
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dollars to go start calling on Best Buy
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and Costco and every everywhere else
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billion dollars the acquisition allowed
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masimo to combine its expertise in
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advanced signal processing biosensing
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and photonics with sound United's audio
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and home automation Technologies this
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Synergy was
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intended keyword intended to innovate in
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the consumer health SP B potentially
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integrating Health monitoring
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capabilities in the audio products okay
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I get that there was actually a
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headphone or earbud that I had that
00:06:40
would monitor heart rate which is kind
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of cool I guess if you're working out or
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whatever and you don't have a smartwatch
00:06:46
and you wanted to know what your heart
00:06:47
rate was again in theory that's kind of
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cool how some of these other brands fit
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into that Vision I'm not sure this could
00:06:54
lead to new consumer products that blend
00:06:56
Health monitoring with audio
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entertainment you going to have like two
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speakers you could put a hand on each
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speaker and then it could tell you like
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if your cholesterol was too high or if
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your PSA was high the brand new mosimo
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SL pulk Soundbar SL PSA monitoring
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device pulk audio bringing you the best
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in home entertainment and prostate
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monitoring they also wanted it for
00:07:20
immediate scale and brand recognition
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this one is a bit of a head scratcher
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for me sound United brought with it
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portfolio a portfolio of iconic audio
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Brands like Bowers and Wilkins Denon
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Rance and others acquiring these Brands
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provided mimo with immediate scale in
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the consumer Market along with the
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prestige and customer base associated
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with these well-known names who is
00:07:45
thinking about masimo when they're
00:07:46
buying Bowers and Wilkin speakers though
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and then finally the Strategic vision of
00:07:51
Joe keani mimo's founder and CEO I also
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heard that he was a bit of an audio file
00:07:57
which kind of makes sense I also heard
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something interesting and this was kind
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of pure speculation I was talking to
00:08:02
some people about it that are in the no
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that are in the audio industry and
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basically it was they wanted heos and I
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kind of alluded to it here where heos is
00:08:13
kind of a whole home audio system and I
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think they thought that they could get
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okay they're wearable their watches
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right with monitoring and then they
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could connect everything the heos app
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everything going into everything else
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but I I I'm wondering if they ever
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actually used heos prior to writing the1
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billion doll check or whatever it was
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however they paid for sound United I
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wonder if at any point somebody in the
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boardroom was like yeah I used he it's
00:08:44
awesome we should definitely get heart
00:08:46
rate in there right underneath cobz kobz
00:08:49
heart rate PSA cortisol levels right
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there and then Rune ready that's what we
00:08:56
want
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here's the problem the consumer side of
00:09:06
mosimo was not very profitable is not
00:09:10
very profitable the average the adjusted
00:09:13
gross margin of all of their consumer
00:09:16
products which includes sound United and
00:09:19
the SmartWatches and the stor baby
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monitor or whatever it is averages out
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to be about
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133% the other side of their business
00:09:28
the adjusted gross margin averages out
00:09:30
to be I don't know 52 or 53% and the
00:09:33
amount of Revenue coming in from the
00:09:35
consumer brand is about 30
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31% of masimo's overall Revenue some
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quick napkin math here last two quarters
00:09:44
the consumer side of masimo brought in
00:09:46
about 150 to 160 million each quarter so
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let's just say it's 150 million a
00:09:51
quarter 133% of a gross margin equates
00:09:54
to about 78 million in profits even if
00:09:58
we said that a 100% of the consumer side
00:10:01
was due to sound United it would take
00:10:03
over 13 years to break even on the sound
00:10:07
United acquisition and it's not it's
00:10:09
probably less than 50% I don't know
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though we we'll never know maybe I don't
00:10:13
want to I don't want to read their
00:10:15
earnings report though margins are
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terrible it's a bunch of stuff that the
00:10:19
company doesn't know anything about
00:10:22
really it does expand their Market to
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end users to customers so that they can
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sell more products
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that are super low margin it's a great
00:10:33
business strategy listen this is what we
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need to do we need to spend a whole
00:10:36
bunch of money a whole bunch of money to
00:10:39
get access to Best Buy can't we just
00:10:41
hire some people to go call on Best Buy
00:10:43
no we should spend a billion doll
00:10:45
they're already in Best Buy so that we
00:10:48
can sell a whole bunch of stuff to
00:10:50
customers isn't that margin really
00:10:52
really bad doesn't matter it's scale
00:10:55
we're going to scale this thing up what
00:10:57
about just taking that billion dollars
00:10:58
and making more healthc care stuff which
00:11:00
is has a margin the that's three and a
00:11:02
half times the margin of the consumer
00:11:04
stuff no it's fine it's fine it's not
00:11:08
like our Stock's going to take a hit or
00:11:16
anything masimo's stock price dropped
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35% in a single day when they announced
00:11:26
the acquisition of sound United was
00:11:29
announced February 16th of 2022 and just
00:11:31
like
00:11:33
that masumo Corporation lost five
00:11:37
billion dollar in market
00:11:39
capitalization and you add on the $1
00:11:42
billion do price tag actually more than
00:11:43
1 billion $6
00:11:47
billion down the drain one day obviously
00:11:51
they probably had to pay out the 1
00:11:52
billion over a longer period of time the
00:11:54
point is that with the price of sound
00:11:57
United added into the market market
00:11:59
capitalization evaporation they lost $6
00:12:02
billion and guess what the stock has
00:12:04
never recovered dipped all the way down
00:12:06
to
00:12:07
$77 at its peak which is a couple months
00:12:10
before the announcement of the
00:12:12
acquisition it was trading at what
00:12:16
$33 it's trading around
00:12:19
$231 right now but some of the only
00:12:22
reasons is because what they're doing
00:12:23
with the sound United's portion of the
00:12:26
portfolio actually the entirety of the
00:12:28
consumer products portfolio let's go
00:12:30
through the timeline of the purchase of
00:12:32
sound
00:12:38
United pittin Capital an activist
00:12:41
investor they take a look at a company
00:12:43
they say it's being mismanaged and they
00:12:45
go in there they buy a bunch of the
00:12:46
stock and then they kind of try to bully
00:12:49
their way onto the board of this company
00:12:51
and then they make a whole bunch of
00:12:52
decisions and sometimes they sell off
00:12:54
different parts of the company Nelson
00:12:56
pelts is a famous activist investor and
00:12:58
I think he did some stuff with Dow
00:13:00
Chemical and he actually tried to do the
00:13:02
same thing at Disney which which
00:13:04
interestingly enough there's a Disney
00:13:07
tie in here anyway August
00:13:10
2022 politan Capital Management led by
00:13:13
Quinton coffee announced it had acquired
00:13:15
nearly 9% stake in masimo criticizing
00:13:19
the company's governance and the $1
00:13:21
billion acquisition of sound United
00:13:24
March 2023 pittin initiated its first
00:13:27
proxy fight nominating coffee and
00:13:29
Michelle Brennan for board seats June
00:13:33
2023 masimo shareholders elected coffee
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so the shareholders agreed with coffee
00:13:40
elected coffee and Brennon to the board
00:13:41
marking a victory for pittin after a
00:13:44
contentious battle where masimo tried to
00:13:47
fend off the activists with a bylaw
00:13:49
changes and legal actions okay I'm not
00:13:52
quite sure how to help hush be quiet
00:13:55
March 2024 just this last year bleon
00:13:59
announced plans for a second proxy fight
00:14:01
nominating two more directors William
00:14:06
Jellison and Darlene Solomon to gain
00:14:09
further influence on masimo's board
00:14:11
citing ongoing issues with oversight and
00:14:14
strategy April 2024 pittin escalated its
00:14:18
campaign targeting mimo's founder CEO
00:14:22
and chairman Joe keani claiming he was
00:14:25
refusing to provide basic information
00:14:27
and access to management May 2024 in
00:14:31
response to masimo's offer to add one
00:14:33
pittin nominee pittin asked for both
00:14:36
nominees to be included suggesting okay
00:14:39
they won more seats July 2024 legal
00:14:41
battles ensued with masimo following
00:14:43
lawsuits against pittin for alleged
00:14:46
misstatements in proxy materials and
00:14:48
pittin filing a lawsuit to ensure an
00:14:50
annual meeting was held promptly ml
00:14:53
postponed its annual meeting from July
00:14:56
2025 to September 9th 2024 4 what a
00:15:00
dumpster fire September 2024 the
00:15:02
culmination of the proxy battle saw
00:15:04
masimo shareholders voting to elect
00:15:07
palitan nominees jalis and Solomon while
00:15:12
outing keani the founder the former CEO
00:15:16
from the board this vote effectively
00:15:18
gave pittin control over the entire
00:15:21
board with four seats post September
00:15:25
2024 following the vote keani announced
00:15:28
his intention to leave mosimo the
00:15:30
company that he founded in a garage in
00:15:34
1989 the company that he took public his
00:15:37
heart his soul he left the company or he
00:15:41
was asked to leave the company because
00:15:45
of sound United Bowers and Wilkins
00:15:49
morance Den pulk Definitive Technology
00:15:54
all led to this guy losing his company
00:15:57
the board reshuffle was seen as a
00:15:59
significant shift in masimo's governance
00:16:01
and pittin now in a position to
00:16:04
influence the company's strategic
00:16:05
Direction particularly regarding the
00:16:07
potential
00:16:09
spin-off potential spin-off of mimo's
00:16:12
consumer business
00:16:18
so less than a year after they purchased
00:16:22
sound United mimo took the entire
00:16:25
section of sound United and all of their
00:16:27
consumer business and packaged them up
00:16:30
and put them in a different division
00:16:32
called the consumer division because
00:16:34
they wanted it off the books at least
00:16:35
they wanted it separated out to where
00:16:37
they can see the healthcare business
00:16:39
high margin business consumer business
00:16:41
low margin business really the reason
00:16:43
why they did that is because they want
00:16:44
to get rid of sound United this is pure
00:16:47
speculation on my part like I know
00:16:49
anything about business it was also
00:16:51
rumored that in July 2024 there was
00:16:54
reports that mimo had received an offer
00:16:57
up to 950 million
00:16:59
for its consumer business which remember
00:17:02
is not just sound United so it would be
00:17:06
about 60 million less than what they
00:17:08
paid for just sound United but now it
00:17:10
would include products like all of their
00:17:13
SmartWatches all of the baby monitoring
00:17:15
stuff basically anything that was put
00:17:18
into the consumer side of the business
00:17:20
anything that we can buy they're now
00:17:21
getting offers for 960 million and
00:17:25
updates in November 2024 suggested that
00:17:28
masimo EX Executives were contemplating
00:17:30
treating consumer audio business as a
00:17:33
discontinued
00:17:34
[Music]
00:17:44
operation which would reflect how its
00:17:47
financial performance would be reported
00:17:49
but not necessarily mean the operations
00:17:51
would cease masimo is still exploring
00:17:53
options for the right strategic move for
00:17:56
the audio Brands this indicates that
00:17:58
masimo was actively seeking to sell or
00:18:01
spinoff the sound United business but no
00:18:04
final decision or transaction has been
00:18:06
confirmed by the latest updates however
00:18:09
the the situation remains fluid and mimo
00:18:12
is clearly moving towards some form of
00:18:14
separation from its consumer audio
00:18:18
business how does Bob Chic fit into this
00:18:22
thing Bob Chic doesn't play a huge role
00:18:24
it's interesting enough that I needed to
00:18:26
include it in this video so in August
00:18:29
2024 during the escalation of the proxy
00:18:32
battle between pittin capital and masimo
00:18:34
Corporation masimo claimed that pitan
00:18:37
founder Quinton coffee had threatened
00:18:40
Bob jaek this threat was reportedly made
00:18:44
in an attempt to influence Chap's
00:18:46
decision regarding his role on masimo's
00:18:49
board if I'm reading that correctly
00:18:51
sounds to me like maybe bis and capital
00:18:53
is trying to bully Bob CH can you
00:18:55
imagine the former CEO of Disney getting
00:18:57
bullied and anyway pittin disputed these
00:19:00
allegations regardless what a dumpster
00:19:03
fire this whole story is so Joe lost the
00:19:06
company he founded because of the
00:19:08
acquisition of sound United I don't know
00:19:10
what do you think put it in the comments
00:19:13
have you ever been running a
00:19:15
multi-billion doll publicly traded
00:19:17
healthc care company and thought about
00:19:19
buying some speakers and amps Brands put
00:19:23
it in the comments how did it work out
00:19:24
for you there's also a huge legal battle
00:19:26
between Apple and Ms Mo because mimo
00:19:30
claimed that apple had infringed on some
00:19:32
of their patents and hired a bunch of
00:19:35
people from mimo to get really I think
00:19:37
it was blood oxygen level to the point
00:19:40
where Apple had to pull off some of
00:19:41
their apple watches off the market for a
00:19:43
while this has gone back and forth a
00:19:46
whole bunch and there's some weird
00:19:47
ruling where Apple got awarded $250
00:19:51
basically just to say hey yes they were
00:19:53
right but we're not giving them any
00:19:55
money this whole thing has been a
00:19:57
complete and utter mess and the Apple
00:20:00
stuff the legal battles are still going
00:20:02
on right now it is amazing to me that a
00:20:06
huge company or a at least successful
00:20:10
healthc care company could be brought to
00:20:12
its knees the guy that founded the
00:20:15
company could be
00:20:17
fired because of buying sound United it
00:20:21
is just Bonkers to me a banana story I
00:20:25
hope you enjoyed it I'm also thinking
00:20:27
about doing the very recent purchase of
00:20:30
Vox by another company if so if you like
00:20:33
this type of a video let me know in the
00:20:35
comments do you want me to do more
00:20:36
videos like this so don't binge watch
00:20:38
anything on Netflix or Hulu binge listen
00:20:41
Maybe through some sound United gear
00:20:43
that may be discounted soon fill your
00:20:46
soul with happiness with that I'm Randy
00:20:47
I'm the cheap Audio Man
