Apple to Buy Beats by Dre for $3.2 Billion
Apple is on the verge of completing the biggest corporate acquisition in the company’s history is recent reports prove to be true. The company that made MP3 players and smartphones trendy and for the masses are going to buy the company that made ridiculously expensive and ostentatious headphones trendy and for the masses as Apple is nearing completion to buy Beats Electronics for $3.2 billion.
Beats Electronics is best known for the Beats by Dre headphone line but also has the Beats Music streaming music service. The company was founded back in 2008 by Dr. Dre and record producer Jimmy Iovine. At one point in time, Taiwanese smartphone manufacturer HTC was the majority owner of the company but have since sold their share in Beats.
For both companies, this is the biggest deal in their respective histories. A recent investment by the asset management firm The Carlyle Group valued Beats at around $1 billion or less than a third of what Apple valued it at. As for Apple, this deal is over seven times larger than their previous biggest acquisition, the purchase of NeXT in 1996 for $429 million.
The big question on many analysts minds is why Apple is buying Beats. Usually, there’s a pretty obvious strategic reason for major mergers and acquisitions. The only thing I can see is to keep Beats by Dre headphones out of the hands of Apple’s competitors but I don’t think HTC ever did that when Beats was owned by them.
An analyst at RBC Capital Markets believes that it’s Beats Music that’s the prize for Apple. A steady monthly revenue source from the streaming service’s subscriptions would be more valuable to Apple than the Beats headphone brand. Most analysts disagree with that sentiment since it’s reportedly not that much more popular than Apple’s iTune’s Radio.
Of course, this could all come down to something as simple as Apple having a pile of cash and being willing to spend it on something that they see as a safe source of steady revenue. Of course, while Apple has been successful in making money off of smartphones and MP3 players, their products aren’t selling as much now as they were a couple of years ago. Who’s to say that won’t happen to Beats soon too?
I don’t see the plan here nor does anyone actually paid to figure out why businesses do things. Maybe Apple made a play for a major premium audio hardware brand, like Bose or Sennheiser, to pair with its products but couldn’t close the deal and Beats is a consolation prize. Other than that, I’m stumped.
Sources: CBC, The Globe and Mail
Posted on May 12, 2014, in Tech and tagged Apple, Beats by Dre, Business. Bookmark the permalink. Leave a comment.
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