Apple may soon acquire Beats Electronics, one of the leading producers of headphones, in a deal which could be valued at as much as 3.2 billion USD, according to various reports by the media. If the deal goes ahead it will be the largest acquisition ever made by Apple.
In September last year, Carlyle Group made a 500 million USD investment in Beats, valuing the company at 1 billion. If the purchase price by Apple is 3.2 billion USD as rumoured then Carlyle has made a very good deal, as Apple for some reason values the company at three times what it was worth just nine months ago.
Beats Electronics was founded in 2006 as a branding project to create value from the rap artist and producer Dr. Dre’s existing audience and was marketed as such. The company has not been leading innovation but followed well trodden paths into noise-cancelling and portable Bluetooth speakers, with varying degrees of success. Clearly, the market leaders and innovators in this industry are Bose and Sennheiser, and companies like Beats are followers.
Why would Apple want this company? It has no track record of innovation, patents, or other intellectual property. Its core products are handset peripherals. The only real value for Apple would be if the acquisition of Beats would give them access to a new market that they cannot easily break into through Beats new and really unproven streaming service. It will be interesting to see if this holds true. I doubt it.
Music streaming is already dominated by YouTube and Spotify. When Beats Electronics launched its subscription service in January, it seemed more like a validation of Spotify’s business model than a threat. Spotify has 10 million paying subscribers, and an additional 30 million people listen to the ads supported version for free.
Below is a video from Financial Times, analysing the potential deal.