Outgrowing investors: when is the right time to move on?

Beats Electronics is reportedly seeking to exit its partnership with HTC by buying out the mobile phone company's 25 per cent stake in the business. According to recent reports, the headphone super-brand is looking to ditch the partnership and bring in a new investor with fresh funds instead.

The headphone brand has enjoyed phenomenal success since its launch in 2008 thanks, in part, to the associated kudos of founder and CEOs Dr Dre and Jimmy Iovine. Since then, the company has single-handedly raised the profile and desirability of headphones, transforming the product from an almost-disposable add-on to a fashion statement in its own right. According to market research group NPD, Beats controls 59% of the US market for premium headphones, which grew by 18% last year. In the process, the brand has reportedly grown its revenues from $200m in 2010 to nearly $1bn last year.

Meanwhile, HTC - by contrast - is stuck in a downward spiral and has warned that it expects to report its first-ever loss in the third quarter of this year, having posted an 83% slump in second quarter profits. HTC was the top seller of Android-based smartphones in the US in 2010, with a market share of 11.8pc, but lost the top spot to Samsung just two years later.

Accounting professionals know that floundering investors can be a barrier to growth and success for rapidly expanding operations. And it seems that Beats has realised that it may be time to take back control from a stagnant stakeholder. 

Of course, the success of brand Beats would not have been possible without strong product lines and a first rate marketing programme. But the success of savvy financial directors behind the scenes should not be underestimated. The company originally sold a 50.1 per cent stake to HTC for $300m two years ago, but bought back half the stake at around half the price a year later.

That said, Beats is not immune to failure, and predictions of slower growth – potentially caused by market saturation - have prompted the brand to explore beyond headphones. Sustainability and future success relies on finance professionals who can make informed decisions about avenues for investment and direction of growth. And outgrowing investors is simply part of the journey. 

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