Portuguese ‘Unicorn’ Farfetch, which has Alibaba as a key shareholder, has been bought by South Korean e-commerce giant Coupang in a deal that will provide the online luxury giant with USD 500 million in emergency funding.
The deal, which is expected to be finalised early next year, sees Farfetch narrowly avoid bankruptcy after a slowing luxury market, M&A missteps and high cost of debt imperilled the platform’s operations, risking ripple effects for partner boutiques and brands.
The sale to Coupang comes after a weeks-long search for a rescuer willing to provide enough capital to keep Farfetch operating amid a worsening cash position and growing doubts about the pioneering luxury marketplace’s future.
On Nov. 28, Farfetch cancelled its scheduled release of quarterly results and told investors to disregard prior financial forecasts, following a report in The Telegraph that the company’s chief executive José Neves was in talks with top shareholders, including Alibaba and Richemont, and JP Morgan to take the company private.
Those talks stalled, however. Richemont quickly issued a statement saying it would not invest further in Farfetch, and an Alibaba executive resigned from the marketplace’s board. In recent days, Neves was casting a wide net for emergency funding needed to stave off bankruptcy, including talks with Apollo Global Management.In Coupang, Farfetch now has a parent with deep pockets and a belief in its marketplace model.
Known as South Korea’s answer to Amazon, the company reported USD 20.6 billion in net revenue in 2022, and is one of the few homegrown giants to successfully defend its home market against Amazon and Alibaba. Like Farfetch, however, it has yet to turn a profit.
Immediately after the deal was announced Monday, Neves took steps to assure employees and vendors that it was business as usual at Farfetch. Neves told staffers on Monday that Farfetch will “continue to pursue our ultimate goal of becoming the defining tech platform for the luxury industry,” according to an internal memo viewed by The Business of Fashion website.
Farfetch’s financial backers are unlikely to recoup their investment, however. The memo also said that equity for all shareholders, including employees, had been wiped out in the deal.
In a statement, Richemont said it did not expect USD 300 million in loans it had issued Farfetch to be repaid. While the USD 500 million bridge loan allows Farfetch to avoid insolvency, the company still has around USD 2.8 billion in financial obligations that include convertible notes, according to estimates from Bernstein. It also includes over USD 1 billion in term loans, such as a USD 200 million credit facility it took out in September.
