Etsy to acquire Elo7, Brazil-based marketplace for unique, handmade items

Rhea-AI Summary

Etsy, Inc. (NASDAQ: ETSY) announced a definitive agreement to acquire Elo7, a leading Brazilian marketplace for unique handmade items, for US$217 million. Elo7, ranking in the top 10 ecommerce sites in Brazil, connects about 1.9 million active buyers with 56,000 active sellers. The acquisition aims to strengthen Etsy's presence in the Latin American market, which is currently underpenetrated, with ecommerce projected to reach $29 billion by 2021. Following the acquisition, Elo7 will operate independently but leverage Etsy's resources to accelerate growth.

Positive

• Acquisition of Elo7 expands Etsy's market reach into Latin America, a fast-growing ecommerce region.
• Elo7's strong local brand recognition and significant buyer-seller connection provide synergies.
• Expected growth in the Latin American ecommerce market at a 26% CAGR through 2024.
• Elo7's existing leadership will continue to operate the marketplace independently, leveraging Etsy's expertise.

Negative

• The acquisition is anticipated to be modestly dilutive to Etsy's adjusted EBITDA margin in the near term.
• Elo7's current run rate for gross merchandise sales (GMS) and revenue is expected to be neutral to Etsy's top-line results.

BROOKLYN, N.Y., June 28, 2021 /PRNewswire/ -- Etsy, Inc. (NASDAQ: ETSY), which operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world, has signed a definitive agreement to acquire Elo7, a privately held marketplace for unique, handmade items, ranked as a top 10 ecommerce site in Brazil. Etsy will acquire the business for US$217 million in cash, subject to certain adjustments for Elo7's working capital, transaction expenses, cash and indebtedness, and reduced by the value of certain equity awards of Etsy to be granted to Elo7 employees in connection with the transaction. Following the closing of the transaction, Elo7 will continue to be headquartered in Sāo Paulo, Brazil and operate as a standalone marketplace run by its existing leadership team.

Considered a leader in 'custom and made-to-order' merchandise in Brazil with strong local brand awareness, the Elo7 marketplace connects approximately 1.9 million active buyers with approximately 56,000 active sellers and currently has approximately 8 million items for sale, the majority of which are made to order. Elo7's marketplace includes items from over 40 retail categories, with more than 50% of gross merchandise sales (GMS) from "special event and life moment" categories such as wedding, baby, home decor, and children's parties.

Josh Silverman, Etsy, Inc. CEO, commented, "Elo7 is the 'Etsy of Brazil,' with a purpose and business model similar to our own. Following our recent agreement to purchase Depop, we're excited to bring another unique marketplace into the Etsy family. This transaction will establish a foothold for us in Latin America, an underpenetrated ecommerce region where Etsy currently does not have a meaningful customer base. We look forward to welcoming Elo7's talented leadership team and employees to the Etsy family."

Compelling Strategic Rationale

Etsy Marketplace M&A Criteria	Elo7 is an Ideal Fit
Aligns with Etsy's mission, strategy and values	Elo7 shares Etsy's mission to 'Keep Commerce Human' with a two-sided marketplace strategy focused on creative microentrepreneurs.
Expands Etsy's TAM in a large and fast-growing market, category or geography	Elo7 is expected to provide Etsy with a local brand in the fast growing Latin American market, where ecommerce penetration is <10%; and Brazil is the largest ecommerce market. The Latin American ecommerce market is projected to reach approximately $29 billion in 2021, with a 26% CAGR forecasted through 2024.
Market leadership, with authentic, organic brand traction	Elo7 is the 'Etsy of Brazil' known for handmade, non commoditized items. We believe Elo7 has ample room to grow and differentiate itself versus established ecommerce players.
Shares Etsy's two-sided marketplace business model	Elo7 is a peer-to-peer marketplace with a capital- light business model and anticipated gross margin profile similar to Etsy's.
Well positioned to benefit from Etsy's expertise to accelerate growth and value creation	Elo7 is an early stage business that we believe can leverage Etsy's proven value creation roadmap to drive further growth and profitability.

 

Carlos Curioni, Elo7's CEO said, "Etsy has always been an inspiration and a reference for us, and we're excited to continue our growth journey as part of Etsy - a company whose mission and culture so closely match our own. We're looking forward to leveraging Etsy's product and marketing expertise to help the Elo7 marketplace, community and team achieve our full potential in Brazil."

Rachel Glaser, Etsy, Inc. CFO, added, "We're excited to announce this purchase of Elo7 following our recent announcement of the Depop transaction - two exciting businesses that meet Etsy's very high bar for use of capital. In addition to job one, which is continuing to drive growth in our core Etsy.com marketplace, we will now focus on integrating Depop and Elo7 into the Etsy family. Reverb, Depop and Elo7 will each continue to be run by their talented and empowered management teams, and we'll connect key functions across the brands in a way designed to accelerate value creation and make the whole worth more than the sum of its parts."

Etsy, Inc's House of Brands Portfolio

Following the close of the acquisition of Elo7 and the recently announced transaction with Depop, Etsy, Inc. will operate four highly differentiated, non-commoditized and loved ecommerce brands: Etsy, Reverb, Depop and Elo7. These businesses all share similar levers of growth to unlock value, including improving search and discovery, building human connections, and making selling and buying easier. The marketplaces will operate independently, while benefiting from shared expertise in product, marketing, technology, and customer support.

Other Transaction Details

In the near term, Elo7's current run rate for GMS and revenue is expected to be neutral to Etsy's top-line results and modestly dilutive to adjusted EBITDA margin. The transaction is currently expected to close during the third quarter of 2021, subject to satisfaction of customary closing conditions.

J.P. Morgan Securities LLC served as exclusive financial advisor to Etsy and Deloitte served as due diligence advisors. Fenwick & West LLP and Bronstein, Zilberberg, Chueiri & Potenza Advogados served as legal advisors to Etsy. Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP and KLA Advogados served as legal advisors to Elo7.

*Sources and data:
Elo7 marketplace data is as of December 31, 2020 unless otherwise indicated.
Elo7 ranked #6 ecommerce site in Brazil: Conversion E-commerce Report in Brazil, April 2021. Study analyzes traffic of 217 largest sites in Brazil with a total of 15 categories, supported by third party data including SimilarWeb and SEMRush.
Brazil ecommerce size and forecast: Euromonitor, Wall Street research
LATAM ecommerce <10% of retail and forecasted to grow at 26% CAGR through 2025: Euromonitor, Wall Street research

About Etsy

Etsy, Inc. operates two-sided online marketplaces that connect millions of passionate and creative buyers and sellers around the world. Our primary marketplace, Etsy.com, is the global destination for unique and creative goods. Buyers come to Etsy to be inspired and delighted by items that are crafted and curated by creative entrepreneurs. For sellers, we offer a range of tools and services that address key business needs. In addition, Etsy, Inc. owns Reverb, a leading global online marketplace dedicated to buying and selling new, used, and vintage musical instruments.

Etsy's mission is to keep commerce human, and we're committed to using the power of business to strengthen communities and empower people. Our company was founded in 2005 and is headquartered in Brooklyn, New York.

About Elo7

Elo7, with approximately 150 full time employees, was founded in 2008 with the mission of transforming people's lives through a humanized buying and selling environment that connects and inspires, giving meaning to each transaction carried out. For sellers, Elo7 works to develop the best technologies and offer simple and practical solutions for managing their sales, and for buyers it is focused on delivering an outstanding shopping experience.

Contacts:
Investor Relations Contact:
Etsy, Deb Wasser, Vice President, Investor Relations and ESG Engagement: dwasser@etsy.com 
or
Etsy, Gabe Ratcliff, Director, Investor Relations: gratcliff@etsy.com

Media Relations Contact:
Etsy, Kelly Clausen, Senior Director, Corporate Communications
press@etsy.com

Cautionary Statement Regarding Forward-Looking Statements

This press release (including statements quoted in this press release) contains forward-looking statements within the meaning of the federal securities laws. Forward-looking statements include statements related to our potential addressable market, the potential benefits of the acquisition of Elo7, expected impact of the acquisition of Elo7 on Etsy's future financial performance and the potential impact on Etsy's consolidated financial results, the anticipated timing of the closing of the acquisition of Elo7, the anticipated impact of applying Etsy's expertise to Elo7's business and the potential of Elo7's business.

Forward-looking statements include all statements that are not historical fact. Forward-looking statements involve substantial risks and uncertainties that may cause actual results to differ materially from those we expect. These risks and uncertainties include, among others, the possibility that the conditions to the closing of the acquisition of Elo7 may not be satisfied or waived or that other events may cause the acquisition to not be completed, the potential impact to the business of Elo7 or Elo7's relationships with its marketplace community due to the announcement of the acquisition, Etsy's ability to successfully integrate the acquisition and execute on its business plan and "house of brands"' operating model, and general economic conditions and political, regulatory, economic and social conditions in Brazil and Latin America, many of which are beyond Etsy's control, and other risks and uncertainties that are more fully described in Etsy's filings with the Securities and Exchange Commission, including in the section entitled "Risk Factors" in Etsy's Quarterly Report on Form 10-Q for the quarter ended March 31, 2021 and subsequent reports that Etsy files with the Securities and Exchange Commission. In light of such risks, readers are cautioned not to place undue reliance on such forward-looking statements.

Forward-looking statements represent Etsy's beliefs and assumptions only as of the date of this press release. Etsy disclaims any obligation to update forward-looking statements, except as required by law.

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SOURCE Etsy, Inc.

FAQ

What is the value of Etsy's acquisition of Elo7?

Etsy is acquiring Elo7 for US$217 million in cash, subject to certain adjustments.

When is Etsy's acquisition of Elo7 expected to close?

The acquisition is expected to close during the third quarter of 2021.

How will the acquisition of Elo7 impact Etsy's market presence?

The acquisition will establish Etsy in the Latin American market, which currently has less than 10% ecommerce penetration.

What are the expected financial implications of the Elo7 acquisition for Etsy?

The transaction is expected to be neutral to Etsy's revenue in the near term but modestly dilute adjusted EBITDA margins.

Who will lead Elo7 after the acquisition by Etsy?

Elo7 will continue to be run by its existing leadership team after the acquisition.