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Adobe Paying $1 Billion to Abandon $20 Billion Figma Acquisition

Adobe has abruptly and expensively abandoned its much-publicized impending merger with the product design software company Figma.

While the news of the collapse of this deal came as a surprise to some, it seems to have been beset by regulatory hurdles as its chief obstacles.

According to Adobe, the two companies could find “no clear path to receive necessary regulatory approvals” from regulators in both the UK and the European Union.

Business competition regulators in both of these governments had been probing the Figma/Adobe deal out of worries that is might make the product design, illustration and image editing marketplaces for consumers anti-competitive.

Adobe for its part pushed back against taking certain steps to placate the UK Competition and Markets Authority in its worries and just last week argued with the agency that a divestment from the Figma deal would be “wholly disproportionate”.

However, very shortly afterward, Figma and Adobe suddenly issued a statement that they were terminating their merger due largely to regulatory hurdles.

Adobe isn’t coming out of the termination easily though. As part of its merger agreement clauses with Figma, Adobe now has to pay the smaller company a $1 billion termination fee.

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

Figma’s CEO, Dylan Field also released his own statement on behalf of his company in which he added,

“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.”

Both companies seem very clear and emphatic that it was the European/UK regulators who really spoiled their party and that Adobe and Figma disagree with the regulators’ reasoning.

The EU’s main regulatory agency, the European Commission also published a statement of its own about its objections to the merger. It claimed last month that the deal between Adobe and Figma might “significantly reduce competition in the global markets.”

More specifically, the EU’s competition commissioner, Margethe Vestager, added,

“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.”

In recent years, EU regulators have taken multiple tough stances on major tech companies (particularly U.S. tech companies) about supposed anti-competitive practices.

Another recent and somewhat related case involved Meta, which only recently gave residents of the European Union access to its new Threads app.

This too happened only after agreements by Meta with EU regulators over what the regulators viewed as certain anti-competitive practices.

Other cases more directly similar to the Adobe/Figma situation include that of Amazon, which received a formal objection from the EU antitrust bureaucrats over its proposed acquisition of Roomba-maker iRobot for $1.7 billion dollars.

Adobe’s bid to acquire Figma was first negotiated during the COVID-19 pandemic, during the surprising tech investment boom that arose around the same time.

The company announced the deal-in-progress in September of 2022 after having valued Figma at close to 50 times its annual revenue.

The UK Competition and Markets Authority’s proposed “remedies” for the Adobe/Figma merger involved either blocking the deal completely or asking for divestiture of operations that overlap between the two companies.

These would be Adobe Illustrator, Photoshop and Figma’s Figma Design, the smaller company’s main product.

The reaction to these suggestions from Adobe and Figma had a rather disbelieving tone. Their published response to the UK CMA claimed major legal and factual errors while adding that the regulatory proceedings  took “an irrational approach to the gathering and appraisal of evidence.”

Figma and Adobe also underscored that “Requiring a multibillion-dollar global divestment of Photoshop or Illustrator in order to address an uncertain and speculative theory of harm is wholly disproportionate,”

Regardless of the validity of the European regulator’s ambiguous claims, the deal is now in any case off the table.

We’ll see what future customer-oriented collaboration Adobe and Figma do manage to salvage from this outcome, if any.

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