I wonder if Adobe is secretly happy about this. They were acquiring Figma at the peak of the market (for growth stock/startup valuations) because of the existential risks that Figma was threatening, due to their collaborative development UX.
But since then:
* Startup valuations have fallen. Ignoring regulatory concerns, a new acquisition deal today would be cheaper.
* Gen AI and Adobe Firefly are the new rage, and Adobe has probably captured back both mental and market share from Figma. And Adobe can now add collaborative features to Firefly, and it doesn't even have to be as good as Figma's to win.
So paying the 1B breakup fee is probably the cheapest and best option for Adobe at this time.
Meanwhile, Figma employees, expecting a big payout, are probably a bit demotivated at this point. And potentially, they might have been working on integrating into Adobe over the past year, so they might have even slowed down in their development pace.
> Adobe has probably captured back both mental and market share from Figma
GenAI/Firefly's success is in a totally different domain to what Figma's doing. Figma's equivalent at Adobe is XD, which has never held a candle to Figma. The existential problem Adobe tried to buy their way out of still exists in the same form at, if anything, a greater severity. I was at Figma's config conf this year and they're finally shipping stuff I tried unsuccessfully to get from the XD team _years_ ago.
> potentially, they might have been working on integrating into Adobe over the past year
Highly, highly unlikely. I have no insider knowledge of Figma, but Adobe's a grown up company and _really_ does not fuck around on the legal stuff (which is part of the basis of Firefly's success – significantly cleaner legal provenance on their training data). Everyone I've spoken to at Adobe says they've been kept at a long arms length.
Unlikely. Based on the google trends [1], Figma sees around 10x more traffic than Firefly, but more importantly it experiences severe weekend drop-offs, meaning people are using it for work. Firefly on the other hand has a constant amount of attention, in line with people playing around with it but not committing to it for serious projects.
Anecdotally I work in UI/UX space as a contractor and I've been given every design in Figma, I hadn't even heard of Firefly until this comment.
[1] https://trends.google.com/trends/explore?date=today%203-m&ge...
Figma has something that Adobe lacks and wanted probably more than Figmas customers. Huge database of essentially all web/ui design done in past 3 years. If Firefly is such a hit wait once FigmaAI will start generating their stuff.
Also it doesn't seem Figma as product was slowed too much - they have recently launched dev mode. One of the biggest features in a while. That put them more ahead of the competition.
Figma reached $400M in 2022 and on its way to hit $600M this year 2023. For perspective they reached $200M in 2021, and $75M in 2020. That is pretty impressive growth rate.
Straightly on a revenue / market cap, Adobe makes $20B Revenue and values at $270B. That is 13.5x multiple. If we expect Figma to hit $1B mark by 2025, they could be worth $13.5B. i.e Even with today's market, I dont think it is hard to do an IPO with that $13.5B valuation.
And if Adobe were to acquire a listed company with 30% premium, that is $17.5B. Not that far off from $20B. Now that Figma has an extra $1B cash flow, I hope they spend it wisely and continue to do well. So while some may argue this is bad for employees and investors. I dont think it is that bad.
I do hope they consider IPO, as I am slightly worried the window of opportunity may be gone when market turns.
Do they still have to pay the fee if the reason was regulatory in nature?
When Adobe announced its plan to acquire Figma in September 2022, the timing was actually at the valley of startup valuations. The market was really down then. Since that time, the market has actually warmed up, not cooled down. This means if Adobe were to negotiate a deal now, it would likely cost them even more than what they agreed upon last year. Contrary to what you said.
Speaking of the negotiation, I think Adobe dropped the ball. They agreed to a whopping 20 billion dollars, which in my view was four times too high given Figma's real valuation at that time, especially considering the low market (I wrote about how I calculate this 5B valuation in https://typogram.co/build/on-adobe-acquiring-figma/). Then, with the deal being halted by regulators, Adobe still had to pay the full breakup fee, within just three days! It's kind of laughable how poor their negotiation strategy was.
About Adobe's product strategy, there's a bit of confusion. Firefly, their new thing, isn't even about UX tooling; it's more focused on creative AI. The real product that is actually relevant here is Adobe XD, which Adobe has just put on maintenance mode (since at least September). a change I noticed on their help page as recently as this September (https://helpx.adobe.com/support/xd.html#troubleshooting). This move is a huge strategic mistake. It's a clear loss of momentum for Adobe in the UX tooling space, making them even less competitive against Figma. Meanwhile, Figma hasn’t missed a beat and continues to surge ahead.
UX is going to get a shake up from AI. We're already seeing a bit of the new paradigm of on-demand UI/UX with Gemini (and the various me-too demos). Both Figma and Adobe are now vulnerable to disruption in this space. Adobe can use the time to ape Figma while flexing their rather good AI expertise.
I think they probably are. I follow Adobe closely and when the acquisition was announced I was pretty skeptical it would be net good for Adobe in the long-run. The problem wasn't the idea of buying Figma, it was the very rich price being paid. Adobe has a history of not doing a lot of big acquisitions (for it's size and massive cash position). When it does acquire big, Adobe is mostly strategic and a "value shopper", meaning they generally don't pay extremely high prices bid up by frothy auctions. This means Adobe must walk away from a lot of deals we never hear about over price. That's why the Figma deal struck me as so unusual.
In the >year since the deal was announced, it's started to look even less plausible to me. Despite being required to pay a large break-up fee, I suspect, Adobe's management is relieved.
> Adobe has probably captured back both mental and market share from Figma
I agree with your initial point - only someone not in the UI space could make such an outlandish, and honestly deranged, claim.
Gen AI isn't going to solve a number of the problems a system like Figma are used for today - not in this generation or foreseeable next ones. It may be a shiny new ball to chase but it's not going to make Adobe's problem in the area go away (if they still care).
The good SaaS cos that are publicly traded are almost all closer to highs than lows.
The company is still likely worth at least $10B if not much more.
The chances of them buying Figma this decade is lowered. I wouldn't be surprised if figma doubles the valuation at that point
[Pure speculation]
How in the world did it take fifteen months for regulators to reject this? That’s an absurdly long time to be operating a business in limbo, and I have to assume it’s the regulators dragging their feet since the companies have every incentive to move quickly.
I don’t have an opinion on whether or not the merger should be approved, but regulators need to make up their minds quicker or else you can expect a serious chilling effect on M&A. Can you imagine agreeing to get acquired knowing that it can take up to 2 years to close? Anyone operating a real business would be crazy to sign on for the distraction.
Your understanding here is fundamentally wrong. Regulators in the US said very early on they were against this merger and were going to fight it. So most of what goes on in the meantime is Adobe and Figma (a) seeing if they can give something up to appease regulators (e.g. it's common for regulators to only sign off on a deal if one of the companies sells off some assets) or (b) decide if they're going to fight the regulators in court.
Your idea of the regulators just "dragging their feet" is incorrect
on the announcement, Sep 15, Adobe stock fell by 17%. the FTC opened some investigation on Nov 2. some EU thing started its process in February (based on filings by refering countries, and of course we have no idea of the details of those country-level processes)
so, all in all, it's likely that relevant authorities quite soon signaled that Adobe-Figma is facing an uphill battle, and now, as they announced, they backed down.
we have no idea of the negotiations, who was fast or not, who recommended what, asked for what guarantees, and so on.
They didn't. They started seriously investigating it less than a month after the announcement and publicly shared this information just over a month later.
> but regulators need to make up their minds quicker
They did. Adobe and Figma were trying to appease regulators by figuring out if there was a way to handle their concerns. They aren't willing to divest themselves enough from their existing portfolio or offer concessions.
If you want them to make up their minds quicker, then the default answer should be No. With weeks not even being an acceptable time frame for action, anything other than No is harmful.
https://www.politico.com/news/2022/11/02/doj-review-adobe-20...
The DOJ already signaled it wanted to block this on antitrust grounds almost a year ago. If "regulators" had immediately rejected the deal, there'd be a similar "oh, this will have a chilling effect" complaint because they slapped it down without adequate due diligence.
This is one M&A deal out of many. The vast majority -- even some that shouldn't be approved IMO -- sail through or squeak through due to persistence. I just can't find it within myself to feel bad for Adobe in this, since the most likely outcome was to just solidify Adobe's grip on the market and reduce competition. I know quite a few people who use Figma who were absolutely dreading this merger.
And with market conditions having changed so much in 15 months, this could just as easily be buyer/sellers remorse before the deal actually closes. For a 15+ month closing, it wouldn’t be the first time!
Actually completing mergers/buyouts takes years anyway.
> you can expect a serious chilling effect on M&A
Oh no, less corporate consolidation. The horror. Won't someone think of the capital class for once?
Presumably regulators in a few countries were interested, each with their own processes, and presumably there's some fairly significant back and forth between the regulators and adobe/figma as adobe/figma tried to convince the regulators that the deal should go ahead.
15 months seems very believable for a deal of this size.
I agree with your overall point that the current regulatory process related to anti-trust M&A very much needs to be improved. While the delay may be the proximate cause, focusing on that risks failing to address the fundamental root cause of the problem, which is A) lack of clarity in regulatory policies and the underlying laws authorizing them, and B) their inconsistent application across different industry contexts and between different international jurisdictions.
The lack of clarity can be improved by regulators adopting clearer public guidelines about how they will interpret and apply the rules (and then establish credibility by actually sticking with those guidelines over time). Improving consistency across jurisdictions is more challenging but still possible if regulators in the largest domains (US and EU) collaborate to harmonize their policies (as is done in many other regulatory contexts).
Recently, Lina Khan in the US has made this problem far worse by aggressively pursuing quite extreme interpretations of anti-trust law, and worse, doing so without establishing any corresponding framework or justification. As a result, this bungling has caused her agency to lose several high-profile cases. So far, much of this bungling seems to be "just for show" (ie political posturing) since it's not working.
Unfortunately, it also has the effect of nerfing the market for entrepreneurial exits via acquisition. While it's true that acquisitions large enough to attract anti-trust scrutiny are outliers, much of the money invested in earlier stage startups (which drives most new job creation in the US), is justified by average returns substantially propped up by a few such >100x acquisitions. Half the extreme high-end outliers being lopped off by regulatory uncertainty around large acquisitions is one reason capital for new business creation and growth is getting scarcer and more expensive. The point being, this matters to our industry and jobs.
The negotiations took that long, to come to nothing. Clearly Adobe couldn't come up with a solution to the problem of a potential monopoly.
Most M&As happen quite quick, mostly dealing with acquiring companies that are outside of the purview of regulators.
I really doubt regulators are dragging their feet. They are most likely understaffed and overworked. Things this big should take time for all sides.
Highly speculative or hyped companies will probably have a somewhat more difficult time attracting VC investors, but so many of those turn out to be frauds or vaporware that I'm not too concerned. Companies like the ones that benefitted from the SPAC boom a couple years ago. Most of those ended up being highly overvalued companies that lost money for the post-VC investors.
Or maybe the goal ought to change.
Maybe everything getting acquired by a huge corporation is not a good thing.
The chilling effect may be more around the design tools market specifically
The case of Adobe is a bit different than anti-monopoly movements against other $T because the lack of 'serious' $100B+ market cap competitors here. So while say an adtech can have multiple big buyers in the $100B+ club, it's unlikely to see Autodesk, Corel, Canva, etc to do a $20B purchase here. AFAICT only Microsoft would sensibly be able to put its hat in the ring at high levels, made even more sane b/c the GitHub purchase, but even that was at $7.5B. So if there is no such thing as a decacorn in design tools b/c Adobe can't do big M&A, then VCs are only looking at exits at $1B, and funding + valuations get less frothy vs other markets.
All that starts mattering around Series A or Series B stage, as they look at how much $ they can exit at, and how big of a follow-on round the company can get with the same constraints. If a VC has a fund of > $50M, a pitch that cannot exit at above $B may break their portfolio design.
I'd rather have "regulatory issues" in a case like this even if it does slow down VC money
In certain narrow cases maybe, where you really want the monopoly-holder to buy the startup. But overall this is better for VCs because competition breeds both investment and acquisition opportunities. In most cases 3 big competitors seeking to acquire your startup is better than 1 big monopoly seeking to acquire your startup.
If Adobe can't buy them, what other exit options do they have? Go public?
1. Microsoft acquisition
2. IPO
3. Salesforce acquisition
The above are also in descending order of valuation. Adobe's $20B was pure pandemic-bubble premium; I doubt MSFT would pay much over half that, Salesforce less still, with an IPO somewhere in the middle.
The more interesting thing to me is actually what Adobe is going to do now, given their near-wind-down of XD. Narayen has almost certainly thought of this, and while it may not exactly be Adobe's typical MO... the opportunity they have now is the old "commoditize your complements." Specifically, to become the biggest corporate sponsor of Penpot.
I generally doubt they will, as it's not really in Adobe's DNA, but they could, and it would be quite an interesting turn of events.
And that's without needing to give up ownership. Is that not a good 'exit'?
I'm still pissed that Morgan Stanley was allowed to buy etrade for some fucking reason and immediately made my entire debit card experience worse, and made absolutely nothing better* for me, the customer.
That would be very awkward (and even dangerous) to have a competitor as an investor.
Adobe is the biggest player in the space, so if denied, might put a damper on future acquisition price.
But given enough interest in this space and the valuation Figma has now - I'm wondering why isn't other big tech companies not building their own Figma alternatives.
I think its entirely possible that Adobe has realized 1) and/or 2) and didn't fight all that hard to make the deal work?
Even my local corner store merging with a corner store in the next town over is bad for suppliers (combined negotiations when buying stock), and bad for consumers (prices set the same between the two towns).
I wonder what a world where company mergers were banned would look like?
The VC market will dry up even more if they see their chances of an exit diminishing because of an overzealous government.
Even though their revenue is only about $400MM, As far as I know, they make a very healthy profit (operating margin of ~90%), and they’ve also been expanding through organic and acquisition means (e.g. they bought Diagram).
Is it because they see the ability to grow the company’s products even more given the Adobe footprint?
They’ve obviously still developed new features and fixed bugs, along with future roadmaps as shown in their showcases.
It’s not like they had the entire company focused on this but likely hired an outside firm to walk them through it.
If a nothing else, I want people to think "we should try more policy experiments to become wiser" rather than "oh no, effect uncertain, better stick with status quo".
I wander if that will make its way to early employees who were hoping for a liquidity event.
First of all the reason for the UK not allowing the merger is completely absurd and based on a false premise which is most likely based on not understanding the field they are regulating.
Regulation based on speculation about the future means that regulators can simply just make up reasons. Thats akin to when kings could just make up reason for their ruling. We were supposed to move away from that so that rule of law was the base.
Second, the fact that the UK can kill a deal like this is wildly problematic and unfortunately not the first time. They did the same with Facebook and Giphy where it made no sense either. It's immature and they obviously aren't understanding the field they regulate. Talk about undermining the growth of society.
Lastly I see a lot of people saying exits is not a good thing and shouldn't be the purpose. But the fact is that a healthy M&A culture is good for startups as that will encourage investors. Once you start killing the ability for exits by introducing such unquantifiable into the settings you are making investors more nervous of spending their money and much more risk averse.
Sad.
I tend to agree the CMA is pushing some esoteric arguments in their rulings, but I don't thinks deal is at all like Facebook / Giphy.
"A healthy M&A culture" isn't undone by a single deal being pulled, especially when that deal is clearly an anti-competitive one.
Also if anything, Adobe overpaid for Figma given it was one of the last deals before Tech stocks properly melted, so even Adobe shareholders can be happy with this outcome
However, I am afraid they will sell to someone else. Namely, Microsoft.
Where Adobe will likely win out though is in the AI side of things so time will tell if that would be enough to replace Figma alone.
The sign up, and cancelling process of their various services are so "dark design" it's criminal. I've had to wait in a chat window for days to have a service cancelled after signing up for something i clearly didn't sign up for, a yearly payment instead of a monthly with no warning for a very expensive suit, and many are in the same boat almost bankrupting entire small companies.
More and more places does this and they should all banned and their CEO's put in jail because they prey on vulnerable people, steal millions and waste everyone else's time.
I'm not kidding one bit with the jail thing, lines have been crossed so much it's getting ridiculous now, i don't care how rich or powerful you are. This is why we need strict regulation and serious consequences for CEO's and shareholders of straight up criminal companies.
Now, I want to read that Microsoft is abandoning the Activision/Blizzard acquisition, a similarly anti-competition deal.
Who I really feel bad for is some of the early employees that just saw life-changing amounts of money vanish in the blink of an eye.
I can't imagine how gutted they must be headed into the Holidays. Obviously that value isn't truly gone - but it certainly changes things, and I am sure many of them did not plan for this.
Lame
They might see a Gen AI approach to Figma that will kill Figma in 5 years.
I’m sure that will happen.
What's wrong with staying a small profitable company that loves what it builds and cares for its customers?
Prices will creep up, product segmentation will be introduced, pop-ups pushing expensive service add-ons will eventually appear. And when the revenue number is pumped enough, it goes public or is sold to private equity which has no trouble with antitrust regulators.
Have you used Figma lately? All of those things have been happening for years with Figma, even before rumors about the Adobe purchase appeared.
Try to sell to the buyer who would maximize the return to company [shareholders]; when that falls through, take whatever the next best path for them is.
Now, let's talk how bad the breakup deal is for Adobe. You've got Elon Musk buying Twitter for a massive 54 billion, with a breakup fee of 1 billion if it doesn't go through. But then, there's Adobe, buying Figma for 20 billion, and they also get slapped with a 1 billion breakup fee. Musk tried to back out of his deal, no real reason, and didn't want to pay the fee. But Adobe? Their deal gets killed by regulators, and they still have to pay the full 1 billion. Makes you really think about the decision-makers' negotiation at Adobe, do they work for Figma?
Before the deal was sealed, Figma didn't start integrating their tech with Adobe’s. However, Adobe put XD on the maintaince mode[^2], losing market share since then. Yes, XD wasn't as cool as Figma, but it had its sizable share of big corporate users. The data backs this up[^3].
The whole fallout from this? For the design community and Figma, it's kind of a win. The CEO of Figma is pretty well-respected for how he treats his team. That 1 billion from Adobe might help out the Figma folks who got left in the lurch. Morale over there is still pretty high. But Adobe stopping development on XD? I think that was a misstep. I suspect they might have done that to please the regulators. Now put the team back together and continue development? That takes time for big machine like Adobe, spoken from my past experience. But I am happy XD get to live on, at least hopefully.
Here are the references I mentioned:
[^1]. My initial thoughts on Adobe acquiring Figma: [Typogram](https://typogram.co/build/on-adobe-acquiring-figma/)
[^2]. Adobe XD Enters Maintenance Mode: [Typogram](https://build.typogram.co/p/adobe-xd-enters-maintenance-mode)
[^3]. Design Tool Survey Report: [Survey 2022](https://uxtools.co/survey/2022/toolkit), [Survey 2023](https://uxtools.co/survey/2023/toolkit)
> The design software firm expects to finish this year with over $600 million in annual recurring revenue, an increase of more than 40% over the past year, people familiar with the matter said. The San Francisco–based company has also been generating cash for a few years, the people said. That financial picture likely makes it one of the best-performing late-stage private tech companies, particularly in a year when many firms have struggled with sagging growth rates as corporate clients have cut their software spending.
https://www.theinformation.com/articles/figma-grew-fast-even...
Is the role of anti-trust, big tech regulation and regulatory fees playing a bigger role here?
Is the era of AI more in favour of say both Figma / Adobe competing vs collaborating - similar datasets?
https://edition.cnn.com/2023/12/19/tech/google-play-store-se...
Did Adobe get or figure out enough tips and tricks for their other products?
I have used adobe a bit over the years but no relation to either group.
That is a lot of subscription to walk away from for a company who is good at subscription, unless one of their parked projects was able to be written in webassembly.
this seems like a really bad thing that it was held up for so long and without any good reasoning. nightmare scenarios both in and coming out of the uk right now
Adobe needs to get their shit together. 15 years ago they were universally loved and now everyone hates them. Their software is super bloated and Creative Cloud runs so much crap in the background even when you're not running any Adobe app and even when you've disabled its background apps in macOS.
The EU is doing great work, in my opinion.
I wish someone would undo Adobe's Allegorithmic buyout, they lost all their ambition after buyout.
Force megacorps to actually compete rather than just snapping up their potential competitors.
Force startups to aspire to create an actual product rather than just manipulating the lizard-brain fears of irrational megacorp execs in the hopes of a payout.
Figma still gets $1B "investment" without giving up any equity or control and Adobe gets to walk away from a massive $20B fee.
Adobe makes $17B a year in revenue, they would need some pretty strong growth out of Figma to justify the price tag especially after valuations came down.
But it is nice to "blame" the regulatory agencies for the breakup so that both companies save face.
Also just seems unlikely that it was regulatory. Sure Adobe has the market cornered but it doesn't seem like this is where the agencies would suddenly choose to care so much. And if it was regulatory, then shouldn't those agencies come out and say "We blocked this, no go."
See also, "Adobe says the FTC is looking into its subscription cancellation practices." https://www.theverge.com/2023/12/15/24003532/adobe-says-the-...
They signal they can't build something to outcompete Figma. Their stock price falls
They axe their existing competing product, and is therefore now way behind.
They face problems with the acquisition, which makes their stock price fall again because it signals that not only can they not build products they can't use their money to buy companies that do.
Then it's confirmed they can't acquire Figma.
Then they have to lose 1bn dollars.
And that money is going to a competitor that they took seriously enough to try and acquire at a sky-high price.
The first paragraph of the article, FROM FIGMA, says:
"Figma and Adobe have reached a joint decision to end our pending acquisition. It’s not the outcome we had hoped for, 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."
The FTC has not been slow rolling this, they have been in discussions. No one wants the FTC to sue unless they have too, especially Figma/Adobe ... it sounds like Figma and Adobe have finally admitted that they were not going to win this one.
It is time to remove electron based app and invest in something that will have a proper memory management. Not only 2gb. My phone has more than this.
You have cornered the market. Now deliver.
I strongly dislike Adobe’s “subscription only” business model, but it seems the market is telling them that subscriptions are a-OK: Adobe’s profits are very steady and are up 70+% in five years. [https://valustox.com/ADBE]
1. Figma could benefit from the AI infrastructure from Microsoft
2. Figma has outgrown the design tool genre, and is becoming productivity/collaboration platform and low-code no-code app builder. Adobe's roadmap seems misaligned
3. Regulation: Figma is big enough and similar enough to Adobe XD and Illustrator
While this is the first time I’ve seen their vision written down, it feels like they’ve done a great job in fulfilling this initially for software product design. Excited to see what comes with a renewed independent focus!
What would be the use of starting a business if the government can arbitrarily block it from being acquired?
I understand this happening in Europe but not America.
I think America is going to lag behind in tech entrepreneurship just like Europe and I wonder what the next potential tech entrepreneurship hub will be.
EU and UK and seemingly everyone else is passing laws and setting up bureaucracies specifically to implement unfair trade restrictions and barriers against US companies and they're basically doing it unopposed, you'd think these actions would at least trigger some tariff threats and WTO complains sadly the government is in a self destruct spiral at the moment.
