How Etsy Has Sustained Growth With a Clever M&A Strategy
The e-commerce platform’s acquisition of Depop is only the latest move in its ambitious expansion plans
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When businesses decide how to allocate their capital, they essentially have four options: reinvest, return capital to shareholders through dividends or repurchases, take on mergers and acquisitions, or build the balance sheet. Historically, tech companies have favored reinvesting: hiring more engineers, entering new markets, and building new products. But as tech profits and cash flow has grown, companies are increasingly turning to M&A and capital returns. One tech company that has fueled its expansion through M&A in the last few years is the e-commerce marketplace Etsy, that was founded in 2005 and went public in 2015.
Building a House of Brands
When Josh Silverman and Rachel Glaser joined Etsy as CEO and CFO in the second quarter of 2017, they inherited a business with slowing gross merchandise value (GMV) growth and ballooning expenses. After a year of reducing costs, rejiggering priorities, and jumpstarting growth, Etsy was on solid enough footing to look for external opportunities. In June 2018, it acquired DaWanda, a German marketplace for gifts and homemade goods. Its corporate development team has been busy ever since.
The internet is a massive market and niche marketplaces can generate hundreds of millions or billions of GMV annually. Etsy’s M&A strategy is to build a House of Brands by acquiring a portfolio of unique marketplaces. Acquired companies operate independently as standalone businesses, but share best practices and resources. When the recent Depop acquisition closes, Etsy will own four differentiated brands:
- Etsy: A global marketplace for vintage and handmade goods;
- Depop: Secondhand fashion with a strong Gen Z customer base;
- Reverb: A marketplace for new, used, and vintage musical instruments; and
- Elo7: Brazil’s leading online market for unique and made-to-order goods
Etsy’s acquisition sizes have grown in tandem with its GMV and balance sheet. DaWanda, Silverman’s first deal in 2018 was $35 million, Reverb, acquired…
