Adobe to acquire design software company Figma for record-setting $20bn

Adobe announced it has entered into a definitive merger agreement to acquire Figma, a collaborative interface design tool provider, for approximately $20 billion in cash and stock. The stunning $20bn price was indeed an outlier at a time with shrinking tech stock prices, rising interest rates, and global financial turbulence. The generous offer of Adobe, the tech giant behind Photoshop, might indicate the company’s determination to retain its market dominance in the face of competition from younger generations of design platforms. 

Founded in 2012, Figma is a San Francisco-based software developer providing online collaborative design tools for professional and amateur users. It is forecast to generate more than $400mn in annual recurring revenue in 2022 and was last valued at $10 billion in June 2021. Figma leverages a web-based and collaborative approach to appeal to an increasing group of professional and non-professional designers, posing a potential threat to Adobe, the traditional design software leader.

Adobe has agreed to double Figma’s last valuation, and the price also implied a 50x annual recurring revenue multiple. The valuation was very rare in the current software market, with a general acquisition slowdown and average revenue multiples dropping to less than 10. The substantial premium may suggest Adobe’s big bet on an open, collaborative, and browser-based trend in the design software industry. Additionally, the acquisition would give Adobe access to millions of non-professional designers, boosting its market share.

However, antitrust scrutiny will be one of the remaining risks surrounding this acquisition. To determine whether the transaction will harm competition, the US Justice Department has planned to investigate the customers and competitors of both companies. Given the political climate surrounding antitrust at the moment, it is not surprising that regulators will pay particular attention to an acquisition of such magnitude. The in-depth investigation will, at the very least, possibly postpone the transaction’s close date.

Analyst: Xiaolu Luna Gan