Adobe is facing a significant obstacle in its attempt to acquire rival Figma for $20bn as the deal is set to undergo a lengthy antitrust investigation in the EU. Antitrust regulators in Europe are preparing to launch a formal investigation into the acquisition later this year due to concerns about potential reduced innovation and higher prices as a result of the transaction.
Typically, large acquisitions undergo a “phase 1” investigation, which takes a few months to complete. However, sources suggest that EU authorities plan to proceed with a more detailed “phase 2” investigation, which could significantly prolong the process and potentially jeopardize the deal altogether.
This setback adds to the challenges faced by the proposed acquisition, which is already under scrutiny by global regulators. Last month, the UK initiated an initial probe into the deal, while the US Department of Justice is reportedly preparing a lawsuit to block the transaction.
In addition to Australia-based Canva, Figma is a leading provider of cloud-based design tools that offer superior performance compared to Adobe’s software, including the renowned image editing system Photoshop, which has dominated the market for years.
Last February, Brussels regulators determined that the acquisition required clearance from the EU, despite the deal’s European sales falling below the threshold for a typical investigation. The EU justified its decision by expressing concerns about the potential impact on competition in the market for interactive product design and whiteboarding software.
Since then, regulators have become increasingly worried that the deal could be a “killer acquisition,” in which a large company acquires a smaller competitor to eliminate competition, according to sources familiar with the EU’s thinking.
“Adobe is attempting to acquire a credible competitor,” said an individual with direct knowledge of the EU regulators’ perspective. “It’s concerning.”
Adobe’s offer for Figma values the company at 50 times its annual recurring revenue. The $20bn price tag is double the amount from a private funding round in 2021 and represents a tenfold increase compared to its 2019 valuation.
Earlier this year, Adobe acknowledged that it anticipated “lengthy reviews” of the deal as regulatory scrutiny intensified worldwide. CEO Shantanu Narayen cautioned against blocking the merger, stating in an interview with the Financial Times that such regulatory action would discourage investment in start-ups.
The company intends to argue that the two businesses operate in distinct markets. Internal research revealed that only 10% of Photoshop users also utilized Figma, highlighting the limited overlap among users, according to multiple sources familiar with Adobe’s defense.
Adobe has yet to present the deal for scrutiny by EU regulators. However, insiders suggest that the company could potentially avoid an in-depth probe if it provides compelling evidence countering the regulators’ concerns in the coming months.
The European Commission stated, “This transaction has not been formally notified to the Commission. If a transaction constitutes a concentration and has an EU dimension, it is always up to the companies to notify it.”
Adobe confirmed that it is still engaged in preliminary discussions with regulators in the EU, the UK, and the US. It remains “confident in the merits of the case and looks forward to successfully completing the transaction.”
Additional reporting by Cristina Criddle in London
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