Dr. Dre's Beats Electronics Gets $500 Million Investment From Carlyle, Buys Out HTC

Beats dominates the U.S. market for high-end headphones, but it failed to give HTC its groove back, so the Taiwanese smartphone company is pulling the plug on their partnership.

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By Brian Patrick Eha

Beats By Dre

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Beats Electronics, a maker of high-end headphones whose distinctive branding and ubiquity makes them hard to miss in many urban areas nowadays, has secured a $500 million investment from Washington-based private-equity firm the Carlyle Group.

Carlyle has purchased an undisclosed minority stake in Beats in a deal that values the electronics maker at more than $1 billion. The ballpark valuation comes as no surprise, given that Beats is on track to net anywhere from $1.2 to $1.5 billion in revenue this year, according to published reports.

"These transactions represent the evolution of the financial strength and significant growth prospects of Beats," Jimmy Iovine, Beats co-founder and chief executive, said in a statement.

Founded in 2006 by rapper Dr. Dre and Iovine, chairman of music label Interscope, Beats has come to dominate the market for pricey headphones. According to the NPD Group, Beats has grabbed more than 60 percent of the U.S. market for headphones costing more than $100. Its signature headsets retail for between $200 and $400.

Related: How Jay-Z Went From Music Mogul to Sports Agent

Also on Friday, Taiwanese smartphone manufacturer HTC announced that it was selling back to Beats its remaining 25 percent stake in the audio equipment company for $265 million. Two years ago, HTC bought a majority stake in Beats for about $300 million and began integrating the company's audio technology into its smartphones.

Then, in July 2012, HTC sold half of its stake, about 25 percent, back to Beats for $150 million. Analysts said the partnership had failed to help HTC make gains in the smartphone market.

Indeed, with most mobile-phone users voting with their wallets in the ongoing East-West beef between Samsung and Apple, HTC has been posting weak earnings. Its profit for the second quarter of 2013 was down 83 percent from the year before.

Carlyle, meanwhile, has stepped in to give Beats the cash it needs to expand both in the U.S. and abroad. Beats sells speakers and car audio systems in addition to headphones. It is also developing a streaming music service to compete with Spotify and Pandora, according to The Wall Street Journal.

"We are confident that Beats will continue to drive innovation and growth in the premium audio accessory market, particularly as the proliferation of smart phones and tablets stimulate increased consumption of digital media," Sandra Horbach, a managing director at Carlyle, said in a statement.

Carlyle will also reportedly fill two of the six seats on Beats' board.

Related: Music Service Rdio Will Launch Free Version to Compete With Spotify

Brian Patrick Eha

Brian Patrick Eha is a freelance journalist and former assistant editor at Entrepreneur.com. He is writing a book about the global phenomenon of Bitcoin for Portfolio, an imprint of Penguin Random House. It will be published in 2015.

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