KEY HIGHLIGHTS
- Deal Termination: Adobe abandoned its $20 billion deal to acquire Figma, citing a lack of antitrust approval clarity in Europe and the UK.
- Termination Fee: Adobe will pay Figma a termination fee of $1 billion for the cancelled deal, marking a significant financial consequence.
- Regulatory Scrutiny: Regulatory bodies in the UK, EU, and the United States raised concerns about the deal’s potential impact on competition and innovation in the software market.
- Figma’s Growth: Figma, a web-based design platform, has seen substantial growth, expanding its team and expected to achieve a 40% increase in annual recurring revenue to over $600 million.
- Generative AI Impact: Both Figma and Adobe have benefited from the generative AI trend, with Figma expanding into software development and Adobe introducing generative photo tools like Adobe Firefly.
- Antitrust Disagreements: Adobe and Figma disagreed with recent regulatory findings, with Adobe refusing remedies suggested by the UK’s Competition and Markets Authority (CMA).
- Implications for M&As: The termination highlights the increasing scrutiny of mergers and acquisitions, potentially affecting not only big tech but also smaller technology companies seeking favorable exit premiums.
Adobe Abandons $20 Billion Acquisition of Figma
Adobe has decided to abandon its proposed $20 billion acquisition of Figma, a cloud-based designer platform, citing challenges in obtaining antitrust approvals in Europe and the UK. The deal, initially announced in September of the previous year, faced scrutiny from regulators concerned about the potential market dominance of Big Tech and the impact on startup competitors.
The termination of the agreement will result in Adobe paying a $1 billion termination fee to Figma, the San Francisco-based company known for its web-based collaborative design platform used by prominent firms such as Uber, Coinbase, and Zoom Video Communications.
Over the past year, Figma has demonstrated significant growth, expanding its team from 800 to 1300 employees. The company is projected to increase its annual recurring revenue by 40% to surpass $600 million in the current year. Figma’s positive cash flow, a crucial metric for evaluating potential IPO candidates, has further solidified its position in the market.
Both Adobe and Figma have benefited from the surge in generative AI technologies. Figma, in particular, has expanded into software development, while Adobe has introduced generative photo tools like Adobe Firefly.
Regulatory Opposition and Implications for the Future
The deal faced opposition from the UK’s Competition and Markets Authority (CMA), which expressed concerns about potential harm to innovation in software used by the majority of UK digital designers. Similar apprehensions were echoed by the European Union, emphasizing the threat to healthy competition.
Sources familiar with the matter revealed that, despite ongoing discussions with antitrust agencies in the UK, EU, and the United States, the UK regulators recently signaled the need for remedies, including the divestment of Figma design assets, for the deal to proceed.
Adobe, with a modest 1% rise in its shares following the announcement, declined to provide fixes to address the CMA’s concerns, asserting that no remedy could sufficiently address their worries while preserving the benefits of the acquisition.
Adobe CEO Shantanu Narayen expressed disagreement with recent regulatory findings but emphasized the decision to move forward independently as being in the best interests of both companies.
The European Commission has not yet commented on the matter, while the CMA confirmed the cancellation of its probe.
Analysts speculate that the termination underscores the increasing scrutiny of mergers and acquisitions, potentially limiting opportunities for startups. Michael Ashley Schulman, CIO at Running Point Capital Advisors, highlighted the broader impact on technology companies, both large and small, with potential consequences for exit premiums.
The Figma deal, initially viewed as a strategic move into the “future of work,” raised investor concerns due to its substantial price tag and the potential for margin erosion. Adobe’s market value suffered a significant decline of over $30 billion when the acquisition was first announced.
Despite the setback, Figma’s venture capital backers, including Index Ventures, Sequoia Capital, Greylock Partners, and Kleiner Perkins, remain optimistic about Figma’s future as an independent company. Index Ventures partner Danny Rimer stated in an email that Figma “will thrive with an incredible team, clear mission, and focus.”
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Source(s): Reuters
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