Adobe and Figma are Breaking Up?

Adobe and Figma recently publicly announced that they will mutually terminate their $20B merger deal. What are they, and how did they get here? Adobe sells creative software like Photoshop, Illustrator, Premiere Pro, etc. Figma's makes a tool that helps creative people like designers. You're not alone if you need clarification on the exact difference between these firms. Regulators feel that, too.

In September 2022, Adobe and Figma publicly announced a merger for which Figma would get $20B, a whopping 50x of Figma's revenue. 50x Figma's revenue! To put that into perspective, 20x Figma's revenue would still have been expensive.

Every time companies want to merge, regulators must give them permission. This is because regulators wish for large companies to have competition. If competitors join hands, the new joint firm would have too much power over consumers as consumers don't have any choice but to go with whatever the new big firm says. When Adobe and Figma wanted to join hands, regulators seemed unhappy. It looks like Adobe and Figma could tell as well.

The publicly stated reason for the firms walking away from the merger deal is that they felt EU and UK market regulators wouldn't give them a green signal to move forward. But here's the thing: the regulators hadn't yet decided. You may question why these firms chose to walk away from this deal even before these regulators came up with a final conclusion. One possibility may be that Adobe is concerned about future repercussions if regulators look too closely into Adobe's market share and decide Adobe has too much market share. It may be in Adobe's best interest for regulators to not spend too much time delving into what Adobe does and whether they have too much market share. Additionally, going through these legal proceedings with regulators takes time and money. This may be not good for both firms.

However, this breakup isn't without consequences. Adobe is set to pay Figma $1B as a merger termination fee. This may make it seem that the winner of this whole scenario is Figma. They get a cool, arguably free $1B. But the flip side of that argument is that they may not find someone to buy them out for such a high valuation again. That said, Adobe's stock went up a bit after this public announcement- which seems to mean that shareholders of Adobe are happy about this fallout despite the $1B payout. So, who actually won between the both of them? No idea. Let's see what happens next.