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Carlyle to Pump Up Dr. Dre's Beats Electronics

The PE firm purchased a minority stake in Andre Young's audio brand with the hopes of expanding it overseas

The Carlyle Group (Nasdaq: CG) looks to expand Beats Electronics LLC, domestically and internationally. The move comes after the private equity firm purchased a minority stake in the Santa Monica, Calif. audio brand, which was co-founded by record producer and rapper Andre Young, known as Dr. Dre. The company is known primarily for making high-end headphones that usually go for north of $100. Despite the hefty price tags of its products, Beats is on track to rake in $1.2 billion dollars in revenue for 2013.

Beats also makes speakers and various types of audio software technology. The company says it has a 64 percent market share in the $100 plus headphone category in North America.

Young created the company with music label Interscope Geffen A&M Records' chairman Jimmy Iovine in 2006 in an attempt to recording-studio quality sound to consumers. Considered one of the world's wealthiest musicians, Young is expected to make some $250 million from the sale. How much of the company he owned prior to the transaction has not been disclosed.

Carlyle is making the investment from affiliates of Carlyle Partners V, the firm's $13.7 billion U.S. buyout fund.

Washington, D.C.-based Carlyle has about $180 billion in assets under management across 118 funds and 81 fund of funds.

Beats also announced that it is buying back a minority stake in the company held by HTC Corp., and HTC will cease to own any portion of Beats. HTC agreed to buy a 51 percent stake in the business for about $309 million in August 2011.

Carlyle isn't the only private equity firm showing interest in headphone companies. Bruckmann Rosser Sherrill & Co. (BRS) has recently teamed up with Palladin Consumer Retail Partners LLC to invest in InMotion Entertainment.

The Jacksonville, Fla.-based company then bought the InMotion Entertainment, Soundbalance and Headphone Hub retail business.

The targets sell headphones, mobile device accessories and other electronics in airports across the U.S. The companies were operated by Project Horizon Inc., a subsidiary of Gate Petroleum Co.

BRS and Palladin partnered on a previous deal - the two bought Things Remembered, a personalized gift brand, in 2006, and sold it to Madison Dearborn Partners LLC for $295 million in 2012.

Fifth Street Finance Corp. (Nasdaq: FSC) provided debt financing and co-invested in the equity of the deal.


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