Implications of the failure of the Adobe-Figma deal


Om Malik

Adobe and Figma have mutually agreed to terminate their previously announced $20 billion merger agreement due to anticipated difficulties in receiving necessary regulatory approvals from the European Commission and the UK Competition and Markets Authority. The decision ends the potential acquisition of Figma by Adobe, announced in September 2022. Both companies will continue to operate independently, and as part of the termination agreement, Adobe will pay Figma the previously agreed-upon termination fee of $1 billion.

The writing has been on the wall for sometime — the regulators on both sides of the Atlantic have been hemming and hawing about not only this specific transaction, but also about any “mergers” or “acquisitions” in the technology sector.

Elsewhere, Federal Trade Commission’s actions have led to the unwinding of Illumina’s $7.1 billion acquisition of Grail. The San Diego, Calif.-based biotech company is going to divest cancer test maker Grail it acquired in 2021. The decision came after a court ruling, which many viewed as a test of Federal Trade Commission’s ability to stop large companies from buying startups. (Related: New York Magazine: FTC Chief Lina Khan’s Rough Year.)

Whether it is Adobe or Illumina, regulators, especially in Europe and the U.K., are making it difficult not only “Big Tech” companies to acquire startups, but also for hampering the plans of the next layer of startups. What happens when it starts to regulate technology companies that want to get to the size of an Adobe or Salesforce?

To be clear, I am not against the idea of regulations. But the fact is that the regulatory system we have today is almost a century old. It has been finessed for the industrial economy. And we are living in a networked economy, where the scale and speed of change is anything we have experienced. And it is about to change. Instead of focusing on the fundamental issues and creating regulatory frameworks, we end up on what cricket players commonly refer to as a “sticky wicket.”

The implications of the failure of the Adobe-Figma deal are pretty clear for the startup ecosystem. If “big tech” and the next layer of technology companies (such as Adobe) can’t buy “startups,” the liquidity environment is going to change for the startup founders, and of course, the venture investors. Deals, especially mid-sized deals, are part of the equation. The innovation ecosystem depends on sustained outcomes — a positive outcome of even one in a hundred startups keeps the innovation engine chugging along.

Large technology companies will be forced to do what they can with their resources — get bigger. By using their mountains of cash, they can enter new markets, and even if they can’t make an impact — they can muddy the waters. Of course, they can do what Microsoft has done with OpenAI — own 49 percent of OpenAI, and get all the benefits without the regulatory headaches.

What about the startups? Well, if the outcomes are going to become scarce, then investor dollars are going to be focused on likely winners — ones that can probably go public. And even that isn’t easy — a minuscule few make it to the “opening bell.” And those that do, most of them find themselves plumbing the depths of the market.

The reality of stock markets is very different from the startup valuation dreamland. Investors, who pump up the private market valuations, eventually have to deal with that as well — you don’t have to look far. Just look at the shifting fortunes of the always ebullient Tiger Global or Softbank’s Vision Fund.

For Figma, which is said to have $190 million in revenues in 2022, is to regroup, streamline its operations, and eventually go public. It will have a billion dollars in breakup fees to help get back on track. The fact that Adobe was willing to pay 250 times the revenue for the company tells you that they saw long-term value in Figma and its future. And when that public offering happens, it does not ensure a smooth ride or a good outcome for the founders and their backers — but at least it has that option. Others might not be that fortunate.

With that said, I have a firm belief in the entrepreneurial ethos — figure out a way to overcome the odds, no matter the odds.


[Above photo by Kelly Sikkema on Unsplash]