Adobe and Figma end proposed $20bn merger

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Adobe has abandoned its proposed $20bn acquisition of product design software company Figma, as there was “no clear path to receive necessary regulatory approvals” from UK and EU watchdogs.

The deal had faced probes from both the UK and EU competition regulators for fears it would have an impact on the product design, image editing and illustration markets.

Adobe refused to offer remedies to satisfy the UK Competition and Markets Authority’s concerns last week, according to a document published by the regulator on Monday, arguing that a divestment would be “wholly disproportionate”.

Hours later, the two companies issued a mutual statement terminating the merger, citing the regulatory challenges. Adobe will pay Figma $1bn in a termination fee under the terms of the merger agreement.

“Adobe and Figma strongly disagree with the recent regulatory findings, but we believe it is in our respective best interests to move forward independently,” said Shantanu Narayen, chair and chief executive of Adobe. 

The companies had been battling multiple regulatory challenges, with the EU’s executive body, the European Commission, publishing a statement of objections to the deal last month arguing the takeover could “significantly reduce competition in the global markets.”

Margrethe Vestager, the EU’s competition commissioner, said: “By combining these two companies, the proposed acquisition would have terminated all current and prevented all future competition between them. Our in-depth investigation showed that this would lead to higher prices, reduced quality or less choice for customers.”

Competition regulators around the world have sent mixed signals over the aspirations of Big Tech groups hoping to acquire promising start-ups and potential rivals, at a time when public markets have been largely closed to new listings. 

The EU’s antitrust watchdog has made a formal objection to Amazon’s $1.7bn proposed purchase of Roomba-maker iRobot. However, Microsoft was able to complete its $75bn takeover of games maker Activision after it made revisions to the deal to appease UK regulators.

Speaking with the Financial Times last week, Figma chief executive Dylan Field said: “It is important that those paths of acquisition remain available because very few companies make it all the way to IPO. So many companies fail on the way.”

Shares in Adobe were up almost 2 per cent in pre-market trading. Since the deal was announced, Adobe has turned its focus to embedding generative artificial intelligence into its products by, for example, enabling users to create novel stock imagery with AI.

The huge price that Adobe was willing to pay for San Francisco-based Figma had been seen by critics of the deal as an effort to quash the software giant’s most promising new rival in decades.

The deal, which was first negotiated during the Covid-19 pandemic’s boom in tech investment and announced in September 2022, would have valued Figma at roughly 50 times its annual recurring revenue, and double its last private funding round in 2021.

The companies were expected to appear in front of the CMA to contest the regulator’s provisional findings on Thursday this week.

Under its proposed remedies in November, the CMA said it was considering either prohibiting the deal or demanding the divestiture of overlapping operations, such as Adobe’s Illustrator or Photoshop, or Figma’s core product Figma Design.

Field said that the latter suggestion left him amazed at “the idea of buying a company so you can divest the company”.

“When I read that document and saw that was one of the proposals, I thought it was quite amusing; it felt like a bit of a punchline to a joke. I was surprised to see that as a proposal from the agency.” In a statement on Monday, Field said he was “disappointed in the outcome”.

Earlier on Monday, the CMA had published the companies’ responses to its provisional findings, which Adobe and Figma said contained “serious errors of law and fact” and took “an irrational approach to the gathering and appraisal of evidence”.

“Requiring a multibillion-dollar global divestment of Photoshop or Illustrator in order to address an uncertain and speculative theory of harm is wholly disproportionate,” they wrote.