Adobe and Figma Terminate $20 Billion Deal After Clash With European, UK Regulators

Adobe Inc. walked away from its $20 billion acquisition of startup Figma Inc. after clashing with regulators in Europe and the UK. Adobe will pay Figma a $1 billion termination fee, the companies said in a statement on Monday. They saw “no clear path” to getting regulatory approvals from the European Commission and the UK’s Competition and Markets Authority.  

Adobe, the dominant force for years in such creative software as Photoshop and Illustrator, announced the purchase of Figma in September 2022. 

The acquisition, which would have been one of the largest takeovers ever of a private software maker, was a massive bet that more creative work will be done on the web, a market that Figma has rapidly seized. While Adobe has introduced less-expensive, streamlined products for that audience, most of its offerings are still desktop programs aimed at specialists.

But regulators in multiple jurisdictions said the deal was another example of a tech incumbent snuffing out a nascent competitor. UK regulators suggested drastic remedies to clear the deal, which Adobe rejected. US regulators, meanwhile, were preparing a lawsuit to block the acquisition earlier this year.

Both companies “strongly disagree with the recent regulatory findings, but we believe it is in our respective best interests to move forward independently,” Adobe Chief Executive Officer Shantanu Narayen said in the statement.

Adobe shares gained 2.2% in New York on Monday morning.

“No Figma, No Problem,” was the title of a note by Evercore ISI analyst Kirk Materne. Adobe is in a much stronger position now than when the deal was announced due to its investments in generative artificial intelligence, Materne said, and walking away from the deal frees up cash for share buybacks. 

Bloomberg Intelligence’s Anurag Rana said the termination “doesn’t change Adobe’s dominant position in the creative software market.”

For more: Adobe Is Focused on AI Rather Than Figma With Acquisition in Limbo

Wall street analysts have always been lukewarm on the deal due to its high price tag. While Figma would have helped Adobe reach new users, some saw the valuation as revealing severe competitive pressures. The creative software giant previously tried to buy Figma in 2020 and 2021 as the startup rapidly gained steam, according to a filing with details on how the merger came together. Eventually, Figma accepted an offer double its valuation at a time when many peers were seeing decreases. 

Figma is mainly used for designing app or website interfaces. It trounced Adobe’s competing XD product in recent years, which is now being phased out by the company. Adobe has argued the deal isn’t anticompetitive because Figma doesn’t make tools that compete with its important products like Photoshop, which is used for photo editing, or Premiere, which is used for cutting video.

For more on why the deal made sense for Adobe.

Still, the plan drew comparisons to Meta Platforms Inc.’s 2012 acquisition of Instagram, another takeover of a small, but rising competitor. The UK’s Competition and Markets Authority argued that if Figma were to stay independent, it would likely grow to compete more-directly with Adobe.

Combining the two clear market leaders for app design and editing of other media, like photos and logos, “would have terminated all current and prevented all future competition between them,” said EU competition chief Margrethe Vestager in a statement. “Our in-depth investigation showed that this would lead to higher prices, reduced quality or less choice for customers.”

Adobe and Figma met with senior Justice Department officials last week to discuss the US agency’s concerns about the deal. The Justice Department didn’t have an immediate comment.

“It’s not the outcome we had hoped for,” wrote Figma Chief Executive Officer Dylan Field in a blog post. “But despite thousands of hours spent with regulators around the world detailing differences between our businesses, our products, and the markets we serve, we no longer see a path toward regulatory approval of the deal.”