As rumors usually go, this one is a pretty juicy one coming from the Financial Times, who is usually pretty spot on with their M&A news, especially in tech. According to the Financial Times, Beats Electronics founded by Jimmy Iovine and Dr. Dre is currently in talks to be bought by Apple to the tune of $3.2 billion. This is compared to the sum that HTC paid back in 2011, $300 million. At that time, HTC actually had a majority share of Beats Electronics and was unsuccessfully using their branding on their phones like the HTC One to push their devices. HTC’s strategy with Beats Electronics ultimately failed and resulted in Beats Electronics buying back HTC’s shares to the tune of around $400 million, and selling those shares to Carlyle Group to the tune of $500 million. This immediately gave Beats a valuation of $1 billion and made them an even more attractive acquisition target, as if their current branding and outrageously priced headphones weren’t enough.
So, Apple is now in talks to buy Beats Electronics for essentially 3x what they were worth in 2013, making Carlyle Group’s investment of $500 million worth over $1.5 billion, netting them a 2x return on their investment in under a year. Furthermore, it almost makes Jimmy Iovine and Dr. Dre billionaires if they evenly split the remaining 50% of the company and didn’t give up any shares to any other founders. Either way, they’re doing pretty well for themselves with all of these various acquisitions and investments that they ultimately never really needed. Sure, Beats Music is a pretty attractive service for carriers to sell to their customers and a potential competitor to Spotify and Pandora, but is that why Apple is buying Beats? We don’t know, but it would definitely be part of the equation in such a large purchase price.
Currently, a Beats and Apple tie up would make a lot of sense, especially if you consider how many Beats products are already in Apple’s stores and how many Apple customers are already buying Beats products. In fact, I don’t really see Apple benefiting too much monetarily from this purchase other than their ability to roll out and push Beats Music as their own service. The audio side of Beats is already taken care of pretty well by Apple’s own engineers, and frankly I’m fairly sure Apple’s sound engineers are far more capable at tuning a smartphone than Beats’ bass-heavy grading. But hey, Apple has a ton of cash lying around and why not acquire an already fairly popular and accepted brand of headphones and music streaming if you’re desperately in need of a good music streaming service?