Adobe just acquired the design startup Figma for $20 billion, which is twice what it was worth before. Figma has tools for designers to work together on mobile and web apps that are used by 4 million designers around the world. Figma’s product offering competes with Adobe’s XD and is expected to add $200 million in net new ARR this year.
The goal of the purchase is to make it easy for Adobe tools and Figma to work together, making Figma the native platform for integrating the design tools. Adobe says that the price is worth it because Figma will have a total addressable market of $16.5 billion by 2025. Adobe’s stock is currently trading at a year-low of $277.57 with a market capitalization of $129.9 billion.
The Global M&A Landscape
The global Mergers & Acquisitions (M&A) volume in 2021 was at an all-time high with more than $5 trillion in recorded transactions, and many doubted if the momentum would be sustainable in 2022.
Interestingly, a glance at the M&A transactions this year shows the boom has continued, and according to Morgan Stanley’s M&A bankers report, all the elements that drove 2021’s record activity remain in place. Hence, it is not surprising to see many M&A activities in 2022, the most recent being Adobe, an American multinational computer software acquisition of Figma, a collaborative interface software for designers, for $20 billion.
Accordingly, this article examines the relationship between the two companies, the acquisition, possible legal consequences, and acqui-hire reference.
An Overview of the Adobe $20 billion acquisition of Figma
Adobe disclosed on September 15, 2022, that it was buying Figma, a rival design platform, for about $20 billion in cash and equity. To make it official, Adobe issued a press announcement after rumours about the acquisition started circulating earlier that day.
However, before the acquisition, Figma was valued at $2 billion in 2020, and in 2021, the company’s valuation increased to $10 billion at the startup’s $200 million Series E investment round.
While some people claim to understand the acquisition justification, some claimed Adobe spent too much for a business valued at roughly $10 billion in a private funding round just over a year before. On the flip side, Figma’s $20 billion acquisition price will significantly increase its valuation from the previous ones.
Interestingly on the part of Adobe, the $20 billion acquisition of Figma will make it the biggest acquisition recorded by the company in its 40-year history. Its largest previous transaction occurred in 2018 when Adobe paid $4.75 billion to acquire marketing software provider Marketo.
Before it, Macromedia’s $3.4 billion purchase in 2005 was the largest. Following this acquisition, Figma is now part of Adobe’s portfolio after Substance 3D was purchased by Adobe earlier in 2022. However, according to Adobe’s announcement, Figma will not transfer to Adobe until some time in 2023, giving consumers some time before things change.
The relationship between Figma and Adobe
Adobe was founded in 1982, and since its creation, Adobe has focused on creating and disseminating software for developing and distributing various media, including graphics, photography, illustration, animation, multimedia/video, motion pictures, and prints.
More importantly, Adobe Photoshop image editing software, Adobe Illustrator vector-based illustration software, Adobe Acrobat Reader and the Portable Document Format (PDF), and various tools, particularly for audio-visual content production, modification, and distribution, are some of its flagship products.
On the other hand, Figma was founded in 2012 as a software application program for collaborative interface design. It also has offline functionality made possible by desktop programs for Windows and macOS. Figma concentrates on real-time collaboration while emphasizing user interface and user experience design, using a variety of vector graphics editors and prototype tools.
Although, when compared with Adobe, Figma is relatively new but has been spreading like wildfire among designers since it is less expensive with a free tier, more straightforward to use, and collaborative. Its unique features pose a significant threat to Adobe.
Furthermore, Figma has always been focused on the web, which has made it very difficult for Adobe and its competitors to compete with it. With this acquisition, Adobe intends to merge its community with Figma, which will likely mean including Figma’s goods and services in the Adobe Creative Suite. Accordingly, Adobe said it expected the deal to be accretive to its earnings three years after completion.
Significance of the Acquisition to the industry and Acqui-hire culture
Firstly, with access to Adobe’s technology, knowledge, and resources in the creative industry, Figma will be able to accelerate its growth and innovation of the Figma platform. The Figma platform, for instance, will have the chance to benefit from Adobe’s expertise in imaging, photography, illustration, video, 3D, and font technology.
This acquisition will enable Adobe to include the well-liked design tools from Figma in its popular range of creative products.
Adobe and Figma will now work seamlessly on the same platform with the merger.
With the acquisition, Adobe will also eliminate a significant rival from the market and subsume it under its brand.
How is an Acqui-Hire Structured? Adobe Figma Case study
Adobe has agreed to acquire Figma for approximately $20 billion, consisting of approximately half cash and half stock, subject to customary adjustments. Figma’s CEO and employees will receive approximately 6 million additional restricted stock units, which will vest over four years following the closing. Adobe anticipates that the cash consideration will be financed with cash on hand and, if necessary, a term loan. The transaction is expected to close in 2023, subject to regulatory clearances and approvals and the satisfaction of other closing conditions, including Figma stockholder approval.
Dylan Field, Figma’s co-founder and CEO, will continue to lead the Figma team after the transaction is completed, reporting to David Wadhwani, president of Adobe’s Digital Media business. Until the transaction closes, each company will continue to operate independently.
How these deals are valued and structured may vary. However, it is typically an acquisition of stock or assets, with the bulk of the purchase price being earmarked for employee packages. Where the buyer specifically wants the team or ‘talent’ of the target company, they may sign a release agreement where the company agrees in exchange for the deal payment to release the buyer for hiring the employees and also a defensive license agreement for the company’s IP.
A liquidation preference implies that investors get some percentage of acqui-hired proceeds. This is intended to ensure they get their money back or a fair return. For example, in a $2 million deal with 25% deal consideration, the investor receives only $500,000.
Furthermore, there are still some things to be mindful of. Typically, possible issues in a typical M&A transaction are applicable when acqui-hiring. For instance, you must ensure you acquire the company and not just the people to avoid a separate winding-up process. It is also important that the Board approves the transaction. Both parties should seek legal advice. It is also important that tax implications and post-closing liabilities of stockholders are considered.
The Tech Acqui-Hire Culture
Acqui-hiring or Acqui-hiring (combination of words “acquisition” and “hiring”) is a relatively new phenomenon in the tech industry which stands for purchasing companies to recruit and acquire their employees, while the product of the company becomes secondary. An acquihire is when one company buys out the other specifically to take the employees.
Acqui-hiring is most common in the tech industry, and many examples exist. For instance, in 2009, Facebook acquired FriendFeed, an innovative service for sharing online. In 2012 when Google was working on a new social media platform to compete with Twitter and Facebook, Google acqui-hired Milk, an app idea lap. Google bought the company to shut it down and keep the team members, who then developed Google+. That same year, Apple acqui-hired AuthenTec in 2012, which gave rise to Touch ID and the iPhone’s fingerprint scanner. Even Twitter acqui-hired the team from the news aggregator app, Brief in 2021 to join twitter’s Experience.org group project. The list is endless.
Is Adobe breaching any Anti-Trust Regulation in the Figma Acquisition?
The main goal of anti-trust legislation has always been to safeguard the competitive process for the benefit of consumers by creating compelling incentives for companies to operate profitably, keep costs low, and maintain high standards of quality. There are three main federal anti-trust statutes in the United States: The Sherman Antitrust Act, the Clayton Act, and the Federal Trade Commission Act.
According to the Sherman Antitrust Act, monopolies are illegal when one company dominates the market for a good or service, and it does so not through the superiority of its goods or services over those of competitors but rather by stifling competition through anti-competitive behaviour.
Although a civil law, Section 7 of the Clayton Act forbids mergers and acquisitions that are likely to reduce competition and raise consumer prices. When a private party has been affected by behaviour that contravenes either the Sherman or Clayton Acts, the Clayton Act also gives them the right to sue for triple damages and ask a judge to issue an order outlawing the anti-competitive behaviour going forward. Furthermore, despite not carrying criminal penalties, the Federal Trade Commission Act forbids unfair business practices.
Accordingly, a merger will raise anti-trust issues if it is likely to induce one or more businesses to raise prices, cut down on innovation, reduce output, or in any other way hurt customers due to reduced competitive limitations or incentives. This is why Anti-trust concerns are more frequent between mergers by closely held rivals.
A critical evaluation of these laws shows that Adobe would eliminate a significant rival from the market and limit customers’ options. Adobe already held a strong market position before the proposed acquisition, and this acquisition would strengthen that position. Consequently, this M&A transaction seems to raise specific anti-trust concerns.
Regulatory Agencies in M&A in the US
The American government operates on a federal structure. As a result, the Federal Government and the specific State where the targeted company is incorporated are in charge of regulating M&A transactions. Generally, the following are the government agencies that regulate M&A transactions;
- The securities and exchange commission is a Federal Government agency that regulates the sales and transfers of Securities.
- The antitrust division of the Department of Justice
- Federal Trade Commission is responsible for making competition policies.
- The Committee on Foreign Investment in the US has the authority to recognize and reduce threats to US national security by foreign investments in US companies.
Conclusion
The Adobe Acquisition of Figma, though met with mixed feelings and potentially breaches anti-trust rule, is expected to accelerate creativity on the web, promote product design, and inspire global communities of creators, designers, and developers.
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