$20 Billion Deal Between Adobe and Figma Called Off Following Disagreements With European and UK Regulators
After facing regulatory hurdles in Europe and the UK, Adobe Inc. has decided to abandon its $20 billion purchase of startup Figma Inc. The companies announced on Monday that Adobe will compensate Figma with a $1 billion termination fee. The decision was made due to the lack of a feasible strategy to obtain regulatory approvals from the European Commission and the UK’s Competition and Markets Authority.
Adobe, for years a dominant force in creative software such as Photoshop and Illustrator, announced the acquisition of Figma in September 2022.
The acquisition, which would have been one of the largest ever by a private software maker, was a massive bet on more creative work being done online, a market that Figma has quickly taken over. While Adobe has introduced lower-cost, streamlined products for this audience, most of its offerings are still desktop programs for experts.
But regulators in several jurisdictions said the deal was another example of an established technology stifling an emerging competitor. UK regulators proposed drastic remedies to get the deal approved, but Adobe refused. US regulators, meanwhile, were preparing a lawsuit to block the acquisition earlier this year.
The two companies “strongly disagree with the recent regulatory findings, but we believe it is in our best interests to proceed independently,” Adobe CEO Shantanu Narayen said in a statement.
Adobe shares rose 2.2% in New York on Monday morning.
“No Figma, No Problem,” was the title of a note by Evercore ISI analyst Kirk Materne. Adobe is now in a much stronger position than when the deal was announced because of its investments in generative artificial intelligence, Materne said, and exiting the deal frees up cash for share buybacks.
Bloomberg Intelligence’s Anurag Rana said the layoff “will not change Adobe’s dominance in the creative software market.”
More info: Adobe focuses on AI rather than Figma in Limbo acquisition
Wall Street analysts have always been lukewarm on the deal because of its high price tag. While Figma would have helped Adobe reach new users, some saw the valuation as revealing serious competitive pressures. The creative software giant previously tried to buy Figma in 2020 and 2021, when the startup rose rapidly, according to the application, how the merger took place. Ultimately, Figma accepted the offer, doubling its value at a time when many partners were seeing declines.
Figma is mainly used to design user interfaces for applications or websites. It beat out Adobe’s rival XD product in recent years, which the company is now decommissioning. Adobe has argued that the deal is not anti-competitive because Figma does not make tools that compete with its major products, such as Photoshop, which is used to edit photos, or Premiere, which is used to edit videos.
Learn more about why the deal made sense for Adobe.
Still, the plan drew comparisons to Meta Platforms Inc.’s 2012 purchase of Instagram, another takeover by a small but rising competitor. The UK Competition and Markets Authority argued that if Figma remained independent, it would likely grow to compete more directly with Adobe.
Combining the two clear market leaders in app design and editing other media such as photos and logos “would have ended all existing and prevented all future competition between them,” EU competition chief Margrethe Vestager said in a statement. “Our in-depth research showed that this would result in higher prices, lower quality or less choice for customers.”
Adobe and Figma met with senior Justice Department officials last week to discuss the US agency’s concerns about the deal. The Justice Department had no immediate comment.
“It’s not the result we were hoping for,” wrote Figma CEO Dylan Field in a blog post. “But despite spending thousands of hours with regulators around the world sorting out the differences between our businesses, our products and the markets we serve, we no longer see a path to regulatory approval for the deal.”
