Etsy Buys Fashion Resale App Depop for $1.62B
June 2, 2021
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 Depop, a privately-held, community-led, and purpose-driven marketplace for unique fashion for $1.625 billion consisting primarily of cash, subject to certain adjustments for Depop's working capital, transaction expenses, cash and indebtedness, and certain deferred and unvested equity for Depop management and employees. Following the closing of the transaction, currently anticipated to occur during the third quarter of 2021, Depop will continue to be headquartered in London, England and operate as a standalone marketplace run by its existing leadership team.
Founded in 2011, Depop is a community-powered marketplace to buy and sell unique fashion, with a mission to build the world's most diverse and progressive home of fashion. Depop's 2020 gross merchandise sales (GMS) and revenue were approximately $650 million and $70 million, respectively, each increasing over 100% year-over-year. Depop's GMS grew at a compounded annual growth rate of nearly 80% from 2017-2020. Etsy believes Depop has a highly differentiated position in the fast-growing resale space:
Josh Silverman, Etsy, Inc. CEO, commented, "We are simply thrilled to be adding Depop—what we believe to be the resale home for Gen Z consumers—to the Etsy family. Depop is a vibrant, two-sided marketplace with a passionate community, a highly-differentiated offering of unique items, and we believe significant potential to further scale. Depop's world-class management team and employees have done a fantastic job nurturing this community and driving organic, authentic growth in a way that aligns well with Etsy's DNA and mission of Keeping Commerce Human. We see significant opportunities for shared expertise and growth synergies across what will now be a tremendous 'house of brands' portfolio of individually distinct, and very special, ecommerce brands."
The second-hand market is projected to grow at a 39% CAGR from 2019-2024 in the United States, reaching $64 billion, and to grow to twice the size of fast fashion on a global basis.1 Starting first in the U.K. and moving into the U.S. and Australia, Depop now has a community of approximately 30 million registered users across nearly 150 countries. With 4 million active buyers and 2 million active sellers in 2020, we believe Depop's cohort behavior is particularly impressive: for example, in 2020, 75% of GMS was from existing cohorts; ~75% of sellers were also buyers; and, on average, sellers sold approximately 10 items and buyers bought approximately 6 items. Depop significantly grows Etsy's GMS in the apparel sector, which was ~$1 billion in 2020. Depop is primarily known for its vintage, streetwear, one-of-a-kind and Y2K (late 1990s/early 2000s) fashion.
Compelling Strategic Rationale
This transaction is an ideal fit with Etsy's marketplace M&A criteria:
Depop's CEO Maria Raga said, "We're on an incredible journey building Depop into a place where the next generation comes to explore unique fashion and be part of a community that's changing the way we shop. Our community is made up of people who are creating a new fashion system by establishing new trends and making new from old. They come to Depop for the clothes, but stay for the culture. We'll now take an exciting leap forward as part of the Etsy family, benefiting from Josh's and his team's expertise, and the resources of a much larger company whose values are so aligned with ours here at Depop."
Rachel Glaser, Etsy's CFO, commented, "We've admired Depop for a while, and are excited to have now reached an agreement to purchase this fantastic business - a company we believe is still in the early innings of its growth opportunity. We love Depop's rapidly growing GMS and loyal and engaged customer base, excellent user engagement and unit economics, opportunities to expand value added seller services, clear path for geographic expansion, and highly scalable, 'capital light' operating model. We're excited to build a 'house of brands' where the whole is greater than the sum of its parts."
Etsy Inc.'s House of Brands Portfolio
Following the close of this transaction, Etsy Inc. will operate three highly differentiated, non-commoditized and loved ecommerce brands: Etsy, Reverb, and Depop. 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 areas such as product, marketing, technology, and customer support.
Additional Details about the Transaction
The transaction is currently expected to close during the third quarter of 2021, subject to satisfaction of customary closing conditions, including antitrust review in the United States and the United Kingdom. Etsy has sufficient available liquidity to fund the acquisition. As of March 31, 2021, Etsy had approximately $2.0 billion in total liquidity consisting of $1.8B in cash, cash equivalents and short and long term investments on its balance sheet and an undrawn $200 million revolving credit facility.
Depop is expected to be accretive to Etsy's top line growth rate and modestly dilutive to Etsy's adjusted EBITDA margin. Etsy expects to share more information in conjunction with its second quarter 2021 financial results.
Goldman Sachs & Co. LLC served as exclusive financial advisor to Etsy, Deloitte as due diligence advisors, and Fenwick & West LLP and Allen & Overy LLP served as Etsy's legal advisors. Credit Suisse served as exclusive financial advisor to Depop and Weil, Gotshal & Manges LLP served as its legal advisor.