What Went Wrong With The Adobe Figma Acquisition?

The plan for Adobe Figma acquisition for a whopping $20 billion hit a big stop sign. They wanted to team up to make design tools better, but the UK and EU regulators weren’t fans.

Reason?

They worried it could mess with fair competition. So, Adobe called off the deal. 

Now, we’re left wondering what this means for design tools and why it all fell apart. To know the root causes, we need to unpack the details from the regulatory roadblocks to the impact on both Adobe and Figma users. 

It’s a bit like a movie plot with unexpected twists, but in the world of tech and design. 

Let’s break it down.

(A) What is Figma? 

Figma is a dynamic and innovative design platform founded by Evan Wallace and Dylan Field in 2012.

We can’t deny the fact that it has become the heartbeat of the digital creative community since its launch 12 years ago. 

To the uninitiated, let me explain the concept of Figma in layman’s terms.

Imagine it as a virtual design studio in the cloud, breaking down geographical barriers and allowing designers worldwide to collaborate seamlessly. Unlike traditional design tools, Figma operates online, enabling multiple designers to work on the same project simultaneously, fostering real-time collaboration.

Accessible on various platforms – be it a powerful PC, a sleek Mac, or a regular Windows device – Figma ensures that the entire design team is on the same page, both figuratively and literally. Its browser-based interface, akin to real-time collaboration in Google Docs, features clickable avatars, showcasing what each user is contributing. This not only eradicates the chaos of version control but also fosters an environment where creativity knows no bounds.

In the era of remote and hybrid work, Figma has experienced a surge in popularity, boasting over 4 million users globally. Its cloud-based nature facilitates efficient collaboration, making it a preferred choice for designers working on diverse projects. With significant backing from venture investors and a valuation reaching $10 billion, Figma continues to shape the landscape of collaborative design, embodying its founding vision of eliminating the gap between imagination and reality.

(B) Figma: A Brief Overview

Before diving deeper into the Adobe Figma acquisition, let’s have a look at Figma’s profile-

(C) Who are Figma Competitors?

The following table describes the competitors of Figma-

The notable point here is- Figma holds the largest market share i.e. 38.60% in collaborative design and prototyping market.

(D) Is Figma a profitable company?

Now, let’s talk about profits and money…

Folks may wonder- Is Figma a profitable company? 

Well, Figma has experienced substantial revenue growth. Yeah! In 2022, the company hit $190 million in revenue, which is a significant increase from previous years. Additionally, Figma crossed $400 million in annual recurring revenue (ARR) at the end of 2022, showing a 100% growth from the previous year. This indicates that Figma is indeed a profitable company, given its strong revenue performance.

(E) Adobe Figma Acquisition Bid at a Glance

Let’s look at the Adobe bid at a glance-

Back in the year 2022, there was an impressive showdown in the fast-evolving realm of digital design. Adobe, a graphic design powerhouse since 1982, set its sights on a revolutionary acquisition. 

Their target? 

Figma, a cloud-based collaborative design platform soaring in popularity. The deal, announced in September 2022, was nothing short of extraordinary, boasting a jaw-dropping $20 billion bid—$10 billion in the crisp embrace of cash and an equivalent share in Adobe’s stock.

As the tale unfolded, key players, envisioning a future together, were promised the spoils of success—approximately 6 million restricted stock units, patiently waiting to vest over four years post-deal closure. This was no ordinary acquisition; it was a strategic move by Adobe to fortify its foothold in the design space, tapping into Figma’s innovative cloud-based collaboration tools.

The financial structure of this grand bid showcased Adobe’s commitment, blending the allure of cash with the stability of stock. The market, anticipating a seismic shift, braced for impact as this acquisition promised to reshape the competitive landscape in the design software domain.

However, the Adobe Figma acquisition journey took an unexpected turn. The regulatory scrutiny emerged as a formidable adversary. 

The UK’s Competition and Markets Authority (CMA) and the European Commission embarked on an intricate investigation, casting a shadow over the once-promising union. 

The climax, set on December 18, 2023, witnessed the termination of the deal, leaving Adobe and Figma to chart separate paths in the ever-evolving saga of design innovation.

(F) Why Adobe wanted to acquire Figma?

The key reason behind Adobe Figma acquisition isn’t just one or two. There are various factors that motivated Adobe to acquire Figma. Here are those-

Go through the following points to understand the key reasons behind the Adobe Figma acquisition in detail-

(F.1) Bridging the innovation gap

Adobe, a stalwart in the graphic design realm, sought Figma to bridge gaps in its product lineup, particularly with Adobe XD. Figma’s real-time, web-based collaborative design tools were seen as a leap forward in fostering seamless teamwork, a facet where Adobe XD was perceived to lag.

(F.2) Tapping into collaborative design trends

Recognizing the increasing demand for collaborative design tools, Adobe aimed to tap into Figma’s success in this domain. Figma’s platform, akin to a virtual design studio, allowed multiple designers to collaborate synchronously, a feature notably absent in Adobe’s existing toolkit.

(F.3) Figma’s rapid growth and market share

Figma’s meteoric rise in popularity, boasting a 77% adoption rate among UI designers, caught Adobe’s attention. By acquiring Figma, Adobe aimed to absorb a major player in the design software market, solidifying its dominance and expanding its market share.

(F.4) Strengthening Adobe XD’s Offering

Adobe XD, while a part of Adobe’s Creative Cloud suite, had not gained as much traction as Figma. The acquisition was envisioned as a strategic move to bolster XD’s offering with Figma’s collaborative features, providing Adobe with a competitive edge in the UX/UI design space.

(F.5) Ensuring Profitability and Market Presence

Figma’s financial success, boasting a 90% gross profit margin and a 150% net dollar retention rate, made it an attractive prospect for Adobe. Beyond innovation, Adobe sought the solid profitability Figma promised, enhancing its financial standing and overall market presence.

(F.6) Extension of Adobe’s Cloud Platform

Adobe, traditionally associated with local software, eyed Figma as a gateway to extending its reach into the realm of web-based experiences. As the market demanded more cloud-centric solutions, acquiring Figma would position Adobe to cater to evolving user preferences and gain a stronger foothold.

(F.7) Exploiting Figma’s Industry Penetration

Figma had already secured a place in the tech stacks of major companies like Kimberly-Clark, Microsoft, Airbnb, Salesforce, and BP. Adobe saw the acquisition as an opportunity to leverage Figma’s industry penetration, expanding its user base and potentially unlocking new avenues for collaboration.

In essence, Adobe’s pursuit of Figma was fueled by a strategic vision to fill gaps, stay at the forefront of collaborative design trends, tap into Figma’s market success, strengthen its own offerings, ensure financial viability, embrace cloud-centric solutions, and exploit Figma’s established presence in the industry.

(G) Why did the deal of Adobe Figma acquisition fail?

The Adobe Figma acquisition faced numerous challenges that emerged as the prominent reasons for the failure of the deal.

Note: Do you know why ZestMoney failed? If not, then visit the article on “Reasons Behind Failed Acquisition & Business Model of ZestMoney” for detailed information.

(H) What went wrong with the Adobe Figma acquisition?

Let’s go through the details of failed Adobe Figma acquisition scenario-

(H.1) Regulatory Roadblocks

The primary stumbling block in the Adobe Figma acquisition was regulatory scrutiny. Entities like the UK’s Competition and Markets Authority (CMA) and the European Commission raised concerns about potential anticompetitive practices. This led to a comprehensive investigation, with regulatory bodies expressing reservations about the deal’s impact on the global market for interactive product design software.

(H.2) UK’s Competition and Markets Authority (CMA)

The CMA played a pivotal role in obstructing the deal. It called for remedies that included the divestiture of Figma Design, the core product that Adobe intended to acquire. The CMA’s insistence on selling off a key component of Figma negated the purpose of the acquisition for Adobe.

(H.3) European Commission’s Investigation

The European Commission also joined the regulatory chorus, initiating an investigation based on concerns about reduced competition in the global markets. The fear of Adobe gaining excessive control over the design software market raised alarms, further contributing to the deal’s downfall.

(H.4) Department of Justice (DOJ) Involvement

The Department of Justice (DOJ) in the United States added another layer of complexity. While it launched an investigation, its involvement came relatively late in the process, resulting in a pat on the back for the EU and the UK after the deal was already thwarted.

(H.5) Unresolved Regulatory Concerns

Ultimately, Adobe found itself unable to navigate the complex web of regulatory demands. The suggested remedies, such as divesting Figma Design, clashed with Adobe’s initial goals of acquiring Figma’s core offering. The regulatory landscape proved insurmountable, leading to the termination of the deal.

(H.6) Cessation of Merger Discussions

Facing formidable opposition from regulatory bodies, Adobe and Figma jointly decided to terminate the acquisition. This decision reflected a recognition that the deal, despite its potential benefits, would face insurmountable challenges in meeting the regulatory criteria.

(H.7) Impact on Future Collaboration

The failed acquisition not only meant a missed opportunity for Adobe but also had implications for the collaborative potential between the two companies. While users initially speculated on the benefits of merging Adobe’s strengths with Figma’s innovations, regulatory roadblocks abruptly halted any synergies.

Thus, the Adobe Figma acquisition deal faltered due to intense regulatory scrutiny, with the UK’s CMA, the European Commission, and the DOJ collectively expressing concerns about competition and market dynamics. The clash between regulatory demands and Adobe’s strategic goals ultimately led to the termination of the deal.

(I) Impact of Adobe Figma Acquisition failure

Both the companies will face severe impact for this failure-

(I.1) Impact on Adobe

The termination of the Adobe-Figma deal comes at a significant cost for Adobe. The obligated $1 billion termination fee, while substantial, is merely the visible consequence of a much larger missed opportunity.

Figma’s remarkable growth, with a staggering 77% adoption among UI designers, signifies a pivotal tool in the design landscape. This acquisition could have propelled Adobe into a position of unparalleled strength, adding a potent asset to its creative design suite. The anticipated $16.5 billion market share for Figma by 2025 adds weight to the magnitude of this loss.

Beyond financial implications, Adobe loses the chance to eliminate a major competitor, allowing Figma to maintain its stronghold in the product design process. The competitive landscape remains intact, compelling Adobe to continue vying with Figma for dominance in the evolving design industry.

While Adobe emphasises continued partnership with Figma, the failure to secure this acquisition leaves Adobe grappling with the enduring challenge of navigating the design software market without the transformative addition Figma could have offered.

(I.2) Impact on Figma

Due to the failure of Adobe Figma acquisition, the latter received a substantial consolation prize of $1 billion, with financial cushioning. 

However, the true cost lies in the lost opportunity to merge with industry giant Adobe. The $10 billion valuation at the deal’s announcement, poised to double with Adobe’s $20 billion bid, hints at the significant growth potential Figma would have attained under Adobe’s wing.

While Figma maintains a strong position, boasting high gross profit margins and impressive customer retention rates, the setback lies in missing the chance to scale operations to new heights with Adobe’s support. 

The growth trajectory Figma has demonstrated year over year could have reached unprecedented levels with the resources and market reach Adobe could offer.

Facing this outcome, Figma must now recalibrate its strategy. The company, recognized for its profitability and customer retention, will likely focus on sustaining its position as a key player in the design software realm. 

Whether through continued growth or potentially exploring new avenues once regulatory constraints ease, Figma’s future trajectory remains a dynamic landscape.

(J) Was this the optimal decision for Adobe?

Numerous industry analysts contend that it could have been a strategic masterstroke, positioning Adobe as a frontrunner in an evolving landscape of work and digital experiences.

Adobe’s track record of successful acquisitions, including renowned products like Photoshop, Macromedia, After Effects, Omniture, Marketo, and Magneto, underscores its ability to integrate and enhance its offerings over time. These acquisitions have played a pivotal role in solidifying Adobe’s status as a graphic design powerhouse.

In the contemporary design realm, professionals demand advanced collaboration tools, seamless prototyping, and unhindered shareability—precisely what Figma excels in providing. Adobe, while laying the groundwork for digital designers, faces limitations with its desktop-centric tools that fall short in meeting these evolving requirements.

The constraint of limited communication often hampers innovation and leads to inevitable reworks. Figma’s real-time web-based collaboration addresses these challenges head-on. An acquisition would have empowered Adobe to furnish designers with the essential tools for success in an increasingly cloud-centric environment, fostering effective collaboration not only within design teams but also with non-design stakeholders.

(K) Final Thoughts on Failed Adobe Figma Acquisition

In the intricate dance of corporate strategies, the termination of the Adobe-Figma acquisition unveils a missed opportunity for Adobe to advance its foothold in collaborative design. 

Regulatory hurdles proved insurmountable, leading to the dissolution of a $20 billion deal. Figma, standing at the forefront of collaborative design, retains its independence with a consolation fee. 

While Adobe forfeits the chance to integrate Figma’s innovative tools, the design landscape remains dynamic, leaving both companies to navigate future avenues independently. 

The episode underscores the challenges of aligning industry giants in the ever-evolving realm of digital creativity. 

Let’s see what happens next!