ETSY, INC. the online marketplace has acquired Reverb.com for $275 million in cash, subject to certain conditions. Reverb will continue to operate as a standalone business when the deal closes later in the year. The transaction marries two companies with very similar business models: Both generate revenue through commissions on merchandise sold on their sites and through additional “seller services” that include promoted listing, payment processing, and shipping labels and insurance.
David Kalt, Founder & CEO at Reverb said: “Today’s announcement is a huge win for the musical instrument industry. Reverb is the success that it is today because of passionate musicians of all levels and genres, music store owners big and small, boutique builders, brands, and more all over the world that visit the site each day for income, inspiration, and the infinite search for a new or better sound. Together with Etsy, we will continue building Reverb into the best place online for anyone to connect over the perfect piece of music gear.”
Etsy, Inc. CEO Josh Silverman commented, “Vibrant two-sided marketplaces are lightning in a bottle–there are only a handful of them operating at scale–and Reverb is one. Reverb is the ‘Etsy’ of musical instruments, with significant competitive advantages, and we see tremendous value and untapped potential in the business.”
Etsy CFO Rachel Glaser commented, “Our M&A strategy looks to put our capital to work in an opportunistic way–finding great businesses at the right value–and we believe Reverb is just that. Reverb shares our mission, has a nearly identical business model, a strong brand in a large, fragmented market, and healthy growth dynamics. We plan to run Reverb as a standalone business, sharing knowledge and best practices across key marketplace growth areas.”
Unique merchandise is the primary attraction of the Etsy website, which lists more than 60 million items in its marketplace, and in 2018 connected 2.1 million sellers with 41 million buyers. 78% of Etsy buyers report that “products on Etsy are unavailable anywhere else.” The gross value of the merchandise sold on the Etsy site was just under $4.0 billion last year. Company revenue for 2018 was $603 million, with net income of $77.4 million versus revenue of $441 million and net income of $81 million in 2017. For the first quarter of 2019, commission and listing revenue of $126 million accounted for 75% of total revenue; seller services generated $42 million, or 24.9% of revenue.
Reverb.com was founded in 2013 by David Kalt. A year earlier, he purchased Chicago Music Exchange, a leading retailer of vintage instruments. A $2.3 million capital infusion for the new venture was provided by a group of investors, including Cheap Trick’s Rick Nielsen, Lightbank co-founders Brad Keywell and Eric Lefkofsky, David Lowery of Cracker and Camper van Beethoven, Silicon Valley entrepreneur Eric Ries, and country music star Brad Paisley. Reverb raised another $4.2 million in January 2015 before announcing an additional $25 million investment led by global growth equity investor Summit Partners in December of the same year. In August 2017, the company announced another $15 million in funding from 65 investors including PayPal co-founder Max Levchin, Silicon Valley investor Roger McNamee, former Twitter COO Adam Bain, and Shutterstock CEO Jon Oringer, who said, “As a regular user of Reverb.com, I am witnessing first-hand the positive impact that the company is having on musicians and the way instruments are bought and sold. I’m excited to support not only a successful marketplace as that business model has proven itself powerful–but a company that’s uplifting an entire industry.”