On May 3, 2023, an inquiry was launched by the UK’s Competition and Markets Authority (CMA) into the anticipated $20bn acquisition by ADOBE of design software company, Figma. The first phase inquiry findings are expected by 30th June.
Meanwhile, reports have emerged that the US Department of Justice is said to be preparing an antitrust lawsuit to block the acquisition, having voiced concerns that the deal would reduce consumer options for design software.
If successful, the Adobe-Figma merger would constitute one of the largest acquisitions of a private tech start-up in history. Figma’s annual recurring revenue (ARR) multiple of 50 (a metric used for subscription businesses) would be the highest multiple paid for any software-as-a-service company of scale – a testament to the company’s strategic market value.
Figma, a San Francisco headquartered, cloud-based collaborative design platform allows for live collaboration between UX/UI designers, runs on all operating systems, and offers countless pre-designed resources and plugins.
The deal, announced on 15th September 2022, is still in the review period mandated by law.
Increased regulatory scrutiny
Any merger of this size is likely to attract the scrutiny of competition regulators. Those that consider Adobe and Figma direct competitors have voiced concerns that this will be a “killer acquisition” – an acquisition designed to eliminate an innovative company as a possible source of future competition. Figma CEO Dylan Field has assured users that Figma will continue to operate autonomously.
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Adobe would do well to consider the current regulatory climate of increased scrutiny. In August 2022, the US Federal Trade Commission (FTC) brought a lawsuit against Meta for its acquisition of virtual reality (VR) fitness app Within – despite the fact that they are not obvious rivals – as the agency increasingly clamps down on Big Tech acquisitions. Meta’s core Facebook business is, after all, about ads, and not VR fitness. In late April 2023, Microsoft also encountered a roadblock to its cloud gaming growth efforts, as the CMA vetoed its planned acquisition of Activision Blizzard.
Indeed, the CMA doesn’t look like it will take a light-touch approach in view of its recent crackdowns. On 25th April 2023, the UK government passed new legislation aimed at boosting competition in digital markets. The Bill will further empower the CMA “to address the root causes of competition issues”, giving the regulator powers to fine companies up to 10% of global turnover for breaching consumer law.
No direct competition with key products, says Adobe
Adobe, however, has argued that the planned acquisition does not breach competition legislation, because Figma is not a direct rival of its flagship products, such as Photoshop. “Adobe and Figma focus on very different product areas today. Figma is a leader in interactive product design, focused on building a collaborative web platform. Adobe is a leader in the creative tools space, helping millions of users create amazing visual content,” an Adobe spokesperson told CNBC. Moreover, Adobe’s design platform, Adobe XD, does not hold a significant share of the market.
Shantanu Narayen, Adobe CEO, has also pointed out that the company’s strong first quarter 2023 financial performance shows that the deal was made from a position of strength, whilst Dylan Field has argued that the integration of Adobe’s technology and resources will allow Figma to address new untapped customer segments and “accelerate [the platform’s] growth and innovation”.
However, worries remain that the merger could harm consumers’ choices, given that there are no comparable alternatives on the market. The design platform Sketch, for example, is limited in its use cases, being Mac-only.
An acquisitive company – a short history of Adobe’s deals
Founded in 1982, the Silicon Valley stalwart has proved itself a highly acquisitive company, having purchased most of its signature products, such as Photoshop.
In 1994, the company purchased Aldus, which it used to develop its InDesign software. The merger raised competition concerns, as the acquisition of Aldus’s PhotoStyler product killed all competition with Photoshop. The US Federal Trade Commission subsequently ordered Adobe to divest Aldus’ graphics editor FreedHand in order to preserve competition between the latter and Adobe’s Illustrator.
And, in 2005, Adobe underwent a US Department of Justice investigation over its acquisition of Macromedia’s suite of web development software – from which Adobe emerged unscathed.
For now, Adobe remains optimistic that the Figma deal will close in 2023, as investors and professional creatives wait with bated breath and the company’s stock price plateaus.