Adobe Inc. and Figma Inc. have decided to terminate their $20 billion acquisition agreement, citing regulatory hurdles in Europe and the UK. Adobe will pay Figma a $1 billion termination fee, marking the end of one of the largest takeovers ever of a private software maker. The acquisition aimed to capitalize on the increasing shift of creative work to the web, a market that Figma has rapidly captured. However, regulators expressed concerns about the deal, viewing it as a way for a tech giant to stifle competition. The European Commission and the UK's Competition and Markets Authority were unlikely to grant regulatory approvals, leading both companies to decide to proceed independently.
Adobe, known for its dominant position in creative software with products like Photoshop and Illustrator, had announced the acquisition of Figma in September 2022. Figma's rapid growth in the market for web-based creative tools made it an attractive target for Adobe. While Adobe has introduced more streamlined and affordable products for web-based creative work, the majority of its offerings are still desktop programs aimed at specialists.
Regulators in multiple jurisdictions viewed the acquisition as an example of an incumbent tech company eliminating a promising competitor. UK regulators proposed significant remedies to address these concerns, which Adobe ultimately rejected. In the US, regulators were preparing to file a lawsuit to block the acquisition earlier this year.
Both Adobe and Figma expressed strong disagreement with the regulatory findings but concluded that it would be best to move forward independently. Adobe CEO Shantanu Narayen noted that the termination of the deal would allow both companies to focus on their respective interests. Following the announcement, Adobe's shares rose by 2.2% in New York.
Analysts have noted that Adobe's position in the creative software market remains strong even without the Figma acquisition. Evercore ISI analyst Kirk Materne highlighted Adobe's investments in generative artificial intelligence as a significant advantage. Additionally, walking away from the deal will free up cash for share buybacks. Anurag Rana, an analyst at Bloomberg Intelligence, also emphasized that Adobe's dominant position in the market remains unaffected by the termination.
The high price tag of the deal had raised concerns among investors, leading to a lukewarm response from Wall Street. While the acquisition would have allowed Adobe to reach new customers, some analysts viewed the valuation as indicative of intense competitive pressures. Previously, Adobe attempted to acquire Figma in 2020 and 2021 but was unsuccessful. Figma eventually accepted an offer twice its valuation.
Figma is primarily used for designing app or website interfaces and has surpassed Adobe's competing XD product in recent years. Adobe argued that the acquisition would not be anti-competitive since Figma does not directly compete with its essential products, such as Photoshop or Premiere. However, regulators likened the deal to Meta Platforms' acquisition of Instagram, expressing concerns that Figma could potentially grow to directly compete with Adobe if it remained independent.
Regulatory bodies, including the European Commission and the UK's Competition and Markets Authority, conducted in-depth investigations. They concluded that the acquisition would eliminate competition between the two market leaders in app design and other media editing, potentially leading to higher prices, reduced quality, and less choice for customers. The CMA also highlighted the potential negative impact on innovation and the development of new products.
Adobe and Figma met with senior officials from the US Justice Department to address concerns regarding the deal, although the department has not provided immediate comment. Figma CEO Dylan Field expressed disappointment in a blog post, acknowledging the extensive efforts to address regulators' concerns but ultimately concluding that there was no feasible path to obtain regulatory approval for the acquisition.