Beats Secures Investment From Carlyle and Buys Out HTC

Beats Electronics has already drawn in huge numbers of fans of its colorful, pricey headphones. Now the audio company, founded by music impresarios Dr. Dre and Jimmy Iovine, has attracted the support of a top private equity firm.

Beats said on Friday that it has 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 in itself held by HTC, the Taiwanese smartphone company. While Beats did not disclose how much it paid, the person briefed on the matter said it was $265 million. Beats is also repaying a $150 million note held by HTC.

The investment by Carlyle will provide one of the biggest boosts yet to Beats, whose signature Beats by Dr. Dre headphones have seized a huge portion of the premium headphone market. The company now claims about 56 percent of the market for headphones costing more than $100, according to the NPD Group.

But the company has moved into new businesses, from speakers to sound systems for Hewlett-Packard computers and HTC phones. Last year, Beats bought the online music streaming service Mog for more than $14 million.

“These transactions represent the evolution of the financial strength and significant growth prospects of Beats,” Mr. Iovine, the company’s chief executive, said in a statement.

The deal is the latest milestone for Beats, which was founded seven years ago after Mr. Iovine told his friend, in slightly cruder terms, 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 â€" Dr. Dre as a legendary hip-hop producer, Mr. Iovine as a longtime record executive â€" and connections within the industry, securing product placements and endorsements by celebrities. Earlier this year, for example, the Beats Pill line of wireless speakers featured prominently in Miley Cyrus‘s “We Can’t Stop” music video and a Radio Shack ad built around Robin Thicke’s racy hit “Blurred Lines.”

Now with Carlyle’s help, Beats will move to take more control of its destiny, including by severing its ties to HTC.

The Asian 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, the Taiwanese company sold about half of its stake, or 25 percent of Beats, back to the company for $150 million.

Now Beats is allying itself with Carlyle, which is betting on the continued success of mobile devices â€" and of Dr. Dre and Mr. Iovine.

“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, Carlyle’s head of consumer and retail, said in a statement.

Mr. Lovine added, “Carlyle is a fantastic investment partner and we look forward to building the next chapter of Beats.”