On Monday, Adobe (NASDAQ:ADBE) announced the abandonment of its $20 billion deal to acquire the cloud-based designer platform Figma, citing insurmountable challenges in obtaining antitrust approvals in Europe and the UK. The deal, disclosed in September of the previous year, faced intense scrutiny from regulators concerned about the potential market power consolidation of Big Tech companies and acquisitions that could stifle competition, particularly those involving startups perceived as emerging rivals.
Adobe will pay a termination fee of $1 billion to Figma, the San Francisco-based company known for its web-based collaborative platform used by notable firms like Uber (NYSE:UBER), Coinbase (NASDAQ:COIN), and Zoom Video Communications (NASDAQ:ZM).
Over the past year, Figma expanded its team from 800 to 1300 employees and is projected to increase its annual recurring revenue by 40% to surpass $600 million in the current year. The company, a crucial tool for digital designers, has also achieved positive cash flow, a significant metric for potential IPO candidates.
Regulatory hurdles arose when the UK’s Competition and Markets Authority (CMA) expressed concerns about the deal harming innovation in software used by the majority of UK digital designers. Similar worries were echoed by the European Union regarding potential competition reduction.
Sources familiar with the matter revealed ongoing communication between the companies and antitrust agencies in the UK, EU, and the United States. However, recent indications from UK regulators suggested that remedies, potentially involving divesting Figma’s design assets, would be necessary for regulatory approval.
Adobe’s refusal to provide remedies led to the termination of the deal. The company argued that it does not compete significantly with Figma, emphasizing that Adobe XD, its only relevant product to the antitrust question, operated at a loss of $25 million as a standalone app over the past three years.
Adobe CEO Shantanu Narayen expressed disagreement with recent regulatory findings but stated that it is in the best interests of both companies to proceed independently.
The termination highlights the challenges posed by increased scrutiny of mergers and acquisitions, potentially impacting not only major tech firms but also startups. Analysts suggest that such regulatory scrutiny could affect exit premiums for smaller technology companies. Figma, in accepting Adobe’s offer, had agreed to a valuation twice its original worth.
The failed deal was viewed as a strategic move toward “the future of work.” However, concerns over the hefty price tag and potential margin erosion led to a decline of over $30 billion in Adobe’s market value when the acquisition was first announced. Figma’s venture capital backers, including Index Ventures, Sequoia Capital, Greylock Partners, and Kleiner Perkins, remain optimistic about Figma’s prospects as an independent company.
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Author Faith Yakubu 
