Argentina-based auction site Mercadolibre inked a strategic alliance with US-based Ebay (NASDAQ: EBAY) (www.ebay.com) on October 1. CEO and cofounder Marcos Galperin says the deal - in which his company swapped 19.5% of its equity for the Brazilian unit of Ebay subsidiary Ibazar - consolidates Mercadolibre's leadership position in the region.
BNamericas: Why Ebay?
Galperin: Ebay did a four-month study during which it studied the region's main auction sites. Having evaluated the business profiles of these companies, Ebay decided that Mercadolibre is the regional leader and that it is the most likely to reach profitability. Ebay also considered the site and technology of Mercadolibre to be far superior to the rest; in fact, it is thinking of adopting some of the site's functions for its own site.
Finally, according to the people at Ebay, Mercadolibre has one of the best teams that they've seen anywhere in the world. For these reasons Ebay decided to form an exclusive alliance throughout Latin America, with Mercadolibre.
BNamericas: How did this process work? How long did it take?
Galperin: The process took four months. During the first month Ebay collected information from all the companies. In the second it invited the management of these companies to Ebay headquarters in San Jose. In the third, Ebay sent a team of five to South America to visit the offices of the auction companies and to get to know the rest of their staff, and then in the fourth month they made their decision. During this time Ebay acquired an enormous amount of information about the companies.
BNamericas: What is Mercadolibre's financial situation after this important alliance?
Galperin: Mercadolibre is probably the most financially stable Latin American Internet company, since it has money in the bank for more than five years of operations assuming zero revenues. In fact, revenues are growing fast and we hope to reach breakeven towards the end of 2002.
BNamericas: With this alliance, what will Mercadolibre's strategy be?
Galperin: The strategy will remain the same: to provide the best service for our users through a site that is technologically superior, through excellent customer service and important additional services such as our MercadoSeguro service, which guarantees all purchases made on Mercadolibre.
BNamericas: In the past you've had talks with Deremate (www.deremate.com) about a possible alliance. Is that no longer a possibility?
Galperin: Having confirmed this alliance with Ebay, Mercadolibre is the undisputed market leader and over the next few months we will focus on integrating Ibazar and Mercadolibre in Brazil and on strengthening the alliance with Ebay.
BNamericas: Is Brazil a key market if Mercadolibre wants to consolidate its presence in Latin America?
Galperin: Brazil is obviously the largest market in Latin America. According to Media Metrix, Mercadolibre was the number one site in Brazil in August 2001, with 162,000 unique visitors and Ibazar was second with 149,000. No other auction site appears in the report due to their traffic levels being too low. By joining the top two sites in Brazil we are creating an absolute leader in the largest market and this is clearly very attractive.
BNamericas: Was this alliance the recognition that you needed to validate your business model?
Galperin: We believe that our model is very valid for the thousands of people who, every month, live off the income they receive through sales in Mercadolibre. Anyway, this exclusive alliance for the whole region is confirmation of Mercado's leadership and shows that Ebay is very interested in entering Latin America alongside the leader to continue developing the market together.
BNamericas: What is Mercadolibre worth today?
Galperin: Mercadolibre, as a private company, without a public price.
Mercadolibre (www.mercadolibre.com) is an auction site for Spanish and Portuguese speakers, with business based on sales by individuals and small companies that regularly buy and sell products and services in over 35 categories.
The company opened its first site in Argentina on August 2 1999, going on to launch in Brazil in October followed by Mexico in November, Uruguay in January 2000, the US and Spain in February and finally Venezuela, Chile and Colombia in March 2000.
Mercadolibre closed its first investment round of US$7.6mn in 1999 with Chase Capital Partners, Flatiron, and Hicks, Muse, Tate & Furst (HMTF). A US$46.5mn second round closed in May 2000, with Goldman Sachs, BSCH and GE Equity, as well as Chase, Flatiron and HMTF.