Adobe canceled its $20 billion bid for cloud-based designing platform Figma on Monday, citing “no clear path” for antitrust permits in Europe and the United Kingdom for what would have been one of the largest buyouts of a software business. The cash-and-stock transaction, disclosed in September of last year, was among the latest to garner intense scrutiny from authorities concerned about large-scale acquisitions that increase the market dominance of dominant businesses or involve startups considered as potential competitors.
Adobe has agreed to pay San Francisco-based Figma $1 billion as a termination fee. Figma is a web-based platform for design and brainstorming that numerous companies, including Coinbase, Zoom Video Communications, Uber, and many more, utilize.
disappointing outcome, but just want to thank our community & Figma’s community for all the support and excitement re: the possibilities. so much respect for @zoink and the whole @figma team – they have such a bright future, and I know we’ll look for ways to partner to bring some…
— scott belsky (@scottbelsky) December 18, 2023
The number of employees at Figma has increased from 800 to 1300 in the last year, and according to someone acquainted with the company’s plans, recurring revenue will increase by 40% to more than $600 million this year. One key indicator that public market investors use to assess possible initial public offerings (IPOs) is whether or not the company has been able to generate positive cash flow.
Adobe and Figma announced we have entered into a mutual agreement to terminate our previously announced merger agreement. We thank our communities for the support. As we turn our sights to 2024 and beyond, we’re excited to build on the incredible innovation we delivered in 2023.…
— Adobe (@Adobe) December 18, 2023
Figma and Adobe have also profited from the current generative AI frenzy, with Figma introducing new features as it grows into software development and Adobe releasing generative photo tools like Adobe Firefly.
Following similar EU concerns about a possible decrease in competition, “Britain’s Competition and Markets Authority (CMA)” stated last month that the pact would hurt innovation for software used by most UK digital designers.
Despite the two companies’ ongoing communication with antitrust authorities in the UK, EU, and US, sources close to the situation said that the UK regulators have recently signaled that they would demand remedies from Adobe for the company to divest itself of Figma design, a critical component of the acquisition.
Adobe, whose stock increased around 1%, had declined to propose solutions to the CMA, claiming that no solution that kept the acquisition’s advantages would alleviate its worries. Photoshop’s creator claimed that it has no real competition with Figma. Adobe said in November that its only antitrust-related product was the design tool Adobe XD, which had a $25 million loss in the previous three years when used independently.
On Monday, Adobe CEO Shantanu Narayen stated that the companies “strongly disagree with the recent regulatory findings, but we believe it is in our respective best interests to move forward independently.” The CMA announced it would discontinue its investigation, but the European Commission reacted slowly.
The CMA has been in the news recently for its actions against high-profile transactions such as “Microsoft’s $69 billion” acquisition of Activision-Blizzard. According to several analysts, the termination demonstrates how increased scrutiny of mergers and acquisitions could also stifle chances for entrepreneurs.
“The effects will be felt not only amongst big tech but also by smaller technology companies who may not be able to command as favorable exit premiums,” said Michael A. Schulman, the CIO at Running Point Capital Advisors. “In the case of Figma, it had accepted an offer from Adobe at twice its valuation.”
The Figma acquisition was viewed as a gamble on the “future of work.” Still, investors feared the high price tag and probable margin erosion wiped out over thirty billion dollars from Adobe’s market capitalization when it was revealed.
Investors from Index Ventures, Sequoia Capital, Greylock Partners, and Kleiner Perkins, among others, were also big winners for Figma. Figma “will thrive as an independent company with an incredible team, clear mission, and focus,” Index Ventures partner Danny Rimer wrote in an email.
