c.2013 New York Times News Service
c.2013 New York Times News Service
Beats Electronics has already drawn in huge numbers of fans of its colorful, expensive headphones. Now, the audio company, founded by the music impresarios Dr. Dre and Jimmy Iovine, has attracted the support of a top private equity firm.
Beats said Friday that it had secured a minority investment from the Carlyle Group to help finance growth. Carlyle is paying $500 million, according to a person briefed on the matter, valuing the music company at more than $1 billion. It will also take two of six seats on Beats’ board.
The electronics maker will also buy back the 25 percent stake held by HTC, the Taiwanese smartphone company. In a separate statement, HTC disclosed that it received $265 million for the stake and that Beats also repaid a $150 million note held by HTC.
The investment by Carlyle is one of the biggest yet to Beats, whose signature Beats by Dr. Dre headphones have seized a huge portion of the premium headphone market. The company claims about 64 percent of the market for headphones costing more than $100, according to the NPD Group.
But the company has moved into new businesses, including speakers and sound systems for Hewlett-Packard computers and HTC phones. Last year, Beats bought the online music streaming service Mog for more than $14 million.
The company is now on track to collect more than $1.2 billion in revenue this year.
“These transactions represent the evolution of the financial strength and significant growth prospects of Beats,” Iovine, the company’s chief executive, said in a statement.
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The deal is the latest milestone for Beats, which was founded seven years ago after Iovine told his friend that selling speakers would make more money than hawking sneakers.
The two began with instantly recognizable bulky headphones that became fashion statements as well as earpieces. They also deployed their star wattage — Dr. Dre as a well-known hip-hop producer, Iovine as a longtime record executive — and connections in the industry, securing product placements and endorsements by celebrities. Earlier this year, for example, the Beats Pill line of wireless speakers were featured prominently in the Miley Cyrus “We Can’t Stop” music video and a Radio Shack ad built around Robin Thicke’s racy hit “Blurred Lines.”
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With Carlyle’s help, Beats will move to take more control of its destiny, including severing its ties to HTC.
The Taiwanese cellphone maker bought half of Beats three years ago for about $309 million, and soon afterward began putting Beats sound systems in some of its phones.
But as HTC has struggled in the smartphone business, slipping far behind Samsung, it has moved to sell down its holdings in its partner. Last year, HTC sold about half of its stake, or 25 percent of Beats, back to the company for $150 million.
Now, Beats is allying with Carlyle, which is betting on the continued success of mobile devices — and of Dr. Dre and Iovine.
“We are confident that Beats will continue to drive innovation and growth in the premium audio accessory market, particularly as the proliferation of smartphones and tablets stimulate increased consumption of digital media,” Sandra J. Horbach, head of Carlyle’s consumer and retail team, said in a statement.
Iovine added, “Carlyle is a fantastic investment partner and we look forward to building the next chapter of Beats.”