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Abandoning Figma merger will cost Adobe $1 billion

EU and U.K. regulators' concerns about 'future competition,' a fairly new antitrust argument, spurs Adobe to cancel $20 billion deal to acquire Figma.

Adobe and Figma called off their $20 billion merger earlier this week after U.K. and EU regulators cited concerns about the future competition among remote collaboration tech platforms for designers. It will still cost Adobe $1 billion.

The billion-dollar termination fee was part of the original planned merger agreement from September 2022. A new termination agreement between Adobe and Figma invoked the payment clause, according to Adobe.

The European Commission (EC), the EU's cabinet government, opened an investigation into the Adobe-Figma merger last August and sent a statement of objections to Adobe last month. In it, the EC said the "proposed acquisition of Figma may reduce competition in the global markets for the supply of interactive product design software and of other creative design software."

Though it's on the hook for the termination fee, Adobe will recoup the capital and developer bandwidth it had set aside for the Figma acquisition at a time it's sorely needed, pointed out Constellation Research analyst Liz Miller. The company can now devote more resources to the continued development of generative AI tools such as Firefly for image generation.

Figma, which describes itself as a "single multiplayer canvas" to design digital products, will continue to release new products and AI features on its own, CEO and founder Dylan Field said in a blog post.

"Both Adobe and Figma came out as winners, albeit there would have been an even bigger win had the acquisition been allowed to continue," Miller said. "But in this scenario, Figma, an organization that didn’t slow down during the past year of inquisition, continued to grow…and now they have a billion-dollar infusion of innovation investment heading their way."

Adobe CEO Shantanu Narayen
Adobe's CEO Shantanu Narayen -- shown here delivering an Adobe Summit keynote -- left the Figma merger still convinced it would have worked well.

'Potential future competition' doctrine and tech

The EC predicted that a merged Adobe and Figma would constrain competition for interactive design tools to create mobile apps, websites and other digital products. Furthermore, it said that on its own, Figma would likely enter the market of vector and raster image-editing tools and take on Adobe's powerhouse applications, Photoshop and Illustrator. A merger would eliminate such competition.

The U.K's Competition and Markets Authority provided its own detailed analysis. It concluded that the merger -- and concomitant lack of competition -- would negatively affect digital designers in the U.K. New companies were unlikely, due to barriers to entry such as assembling technical teams and building cloud services requiring scale. Even if that did happen, the customer costs of vendor-switching would likely be prohibitive.

Adobe and Figma strongly disagreed with those findings, said the CEOs of both companies, but they nevertheless bailed out of the deal.

Potential future competition is a subjective idea, leading legal scholars to call the doctrine time travel, for short. The U.S. Federal Trade Commission has used it to challenge tech mergers, which has led legal observers to predict that private-sector litigants could follow.

The billion-dollar question is: Could this scuttled Adobe-Figma deal chill future tech mergers and acquisitions? Miller predicted it's possible. More likely, it revealed a better playbook for tech vendors to succeed when they interact with regulators: Educate them so they don't extend the "time travel" metaphor to draw bad conclusions -- such as overestimating Figma's ability to launch viable Photoshop and Illustrator competitors, she said.

"This could chill big buys with big price tags, which immediately attract questions and complaints," Miller said. "But this case will likely go down in the books as one of the great 'lessons': Regulatory bodies don’t fundamentally understand technology markets. For any regulatory body to completely misunderstand the competitive landscape and business reality of both Figma and Adobe, [it] should be a wakeup call to bring more technologically savvy and skilled leaders into the investigation process."

Don Fluckinger covers digital experience management, end-user computing, CPUs and assorted other topics for TechTarget Editorial. Got a tip? Email him.

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