Etsy is pulling out the checkbook for the second time this month, and it appears this time the online marketplace for handmade and vintage goods is making a play for consumers in Latin America in acquiring Brazil-based Elo7 for $217 million in cash.
Earlier in June, Etsy scooped up U.K.-based peer-to-peer fashion resale marketplace Depop for $1.63 billion in an effort to grab the growing Gen Z demographic, capitalize on the resurgent apparel category and further its expansion into Europe.
Now, the company is looking at burgeoning e-commerce markets with Elo7. Specializing in custom and made-to-order merchandise, the Elo7 marketplace, which connects approximately 1.9 million active buyers with approximately 56,000 active sellers, had approximately 8 million items for sale as of Dec. 31, 2020. The majority of items sold are made to order, Etsy said.
Elo7’s marketplace includes handmade, non-commoditized items from more than 40 retail categories, with more than 50 percent of gross merchandise sales from “special event and life moment” categories such as wedding, baby, home decor and children’s parties. With this in mind, the acquisition comes as social gatherings are returning to consumers’ calendars as Covid-19 vaccination rates continue to increase worldwide.
The e-commerce marketplaces appear to have such similar business models and purposes that Etsy CEO Josh Silverman referred to Elo7 as “the Etsy of Brazil.”
“Following our recent agreement to purchase Depop, we’re excited to bring another unique marketplace into the Etsy family,” Silverman said in a statement. “This transaction will establish a foothold for us in Latin America, an underpenetrated e-commerce 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.”
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In particular, both businesses have what Etsy describes as a capital-light business model and similar anticipated gross margin profiles. Etsy also says Elo7 shares its mission to “Keep Commerce Human” with a two-sided marketplace strategy focused on creative microentrepreneurs.
Following the closing of the transaction, Elo7 will continue to be headquartered in Sāo Paulo and operate as a standalone marketplace run by its existing leadership team. Elo7 currently has 150 full-time employees. Depop is undergoing a similar integration and will still be run by its own management team.
Etsy’s “house of brands,” which also includes musical instruments marketplace site Reverb, is positioned to benefit from each company’s shared expertise in product, marketing, technology and customer support. Rachel Glaser, chief financial officer at Etsy, said, “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.”
E-commerce in Latin America lags that of the U.S. and Canada, with penetration of total sales still less than 10 percent, according to data from Euromonitor International. But the region projects a 105 percent growth in volume among its top six markets between 2018 and 2022, according to Americas Market Intelligence (AMI) analysis. Already the largest market in Latin America, Brazil is expected to grow e-commerce 80 percent.
Through 2025, Euromonitor says the region is forecasted to grow at a 26 percent compound annual growth rate (CAGR).
Elo7 is currently the sixth-most visited e-commerce site in Brazil, according to the April 2021 Conversion E-commerce Report from SimilarWeb and SEMRush. The study analyzed traffic of the 217 largest sites in Brazil across 15 categories.
Even with Elo7’s current popularity, the overall nascence of Latin America’s e-commerce landscape gives Etsy confidence that there’s considerable of room for expansion. In its “compelling strategic rationale” for the deal, Etsy said Elo7 is an “early-stage business that we believe can leverage Etsy’s proven value creation roadmap to drive further growth and profitability.”
“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,” Carlos Curioni, Elo7’s CEO, said in a statement. “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.”
Etsy had deep pockets prior to both the Depop and Elo7 deals. The online marketplace said it had $2 billion in total liquidity as of March 31, including $1.8 billion in cash, cash equivalents and short- and long-term investments, plus an undrawn $200 million revolving credit facility.
The transaction is currently expected to close during the third quarter of 2021, subject to satisfaction of customary closing conditions. The deal itself is still 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.