Adobe’s stock dropped 17% on the day it revealed it was purchasing Figma for about $20 billion. Usually, victories don’t feel like that. Investors were making it very evident that the price was high, the reasoning was questionable, and the regulatory path ahead appeared difficult. They were correct on all three counts, looking back.
Over the next fifteen months, one of the most closely examined transactions in recent tech history took place. Formal confirmation of the Adobe-Figma acquisition failure in December 2023 left Figma unexpectedly free, Adobe $1 billion poorer, and many people debating who was actually at fault.
The simple explanation is that it was killed by European regulators, namely the European Commission and the UK’s Competition and Markets Authority. Shantanu Narayen, CEO of Adobe, publicly stated that his organization “strongly disagreed” with the regulatory conclusions. And there’s a component to that annoyance. The deal didn’t even meet the EU’s standard merger review thresholds, and the European Commission only obtained jurisdiction through a non-standard Article 22 referral from Germany and Austria. This deal might have closed with modest conditions in a different year or under a different regulatory environment.
However, the more you learn about what really transpired, the more difficult it is to attribute this solely to London or Brussels.
Adobe discreetly terminated Project Spice, an internal tool it had been working on to directly compete with Figma, in September 2022, the same month it announced it was purchasing Figma. That choice did not garner media attention. It hardly made an impression.
However, the CMA took notice. Regulators discovered a company that had already provided an answer when they began looking into whether Adobe planned to continue being a competitive force in the design software market. Adobe had abandoned the next-generation product that could have given it a chance and cut back on investment in Adobe XD, its current rival to Figma. Adobe “struggled to explain” Project Spice’s cancellation, according to the agency. That’s a courteous way of saying that the explanation wasn’t convincing.
This is significant because it completely altered the nature of the regulatory issue. When a watchdog finds competitive overlap in most merger reviews, there are ways to address it, such as selling off a unit, making behavioral commitments, or divestitures.
Since Adobe had already dismantled what regulators wanted Adobe to maintain as a competitive alternative, there was no clear solution to Adobe’s predicament. A product that is no longer in production cannot be sold. Adobe was given two options by the CMA’s final provisional findings: either sell Figma Design, the key asset it was spending $20 billion to acquire, or face complete prohibition. That was not a position of negotiation. In essence, it was a no.
The actual cost of the deal is another issue. The structure was more intricate, with $10 billion in cash, $10 billion in Adobe stock fixed at a share count from September 2022, and about $2.2 billion in retention shares. The headline figure was $20 billion. Adobe’s stock had increased by about 60% by the time the deal fell through. Adobe would have had to pay more than $30 billion to close because the share count, not the value, was locked. Against that math, walking away for $1 billion begins to look different.
Reports in early 2023 indicated that the US Department of Justice was getting ready to file a lawsuit, and it had also issued a Second Request. The markets were momentarily shaken by that. However, the DOJ never filed. This agreement was not decided by an American court. Adobe and Figma specifically blamed the European Commission and the CMA, not Washington, when they ended the contract.
For its part, Figma emerged from the entire incident in an unexpectedly strong position. The $1 billion split fee was paid in full. During the deal period, the company’s workforce increased from 800 to 1,300, its yearly recurring revenue exceeded $600 million, and its cash flow was positive. Since then, Figma has moved toward an IPO, and some analysts predict that the company’s valuation on the open market may surpass what Adobe ever offered. The venture investors, including Index Ventures, Sequoia, Greylock, and Kleiner Perkins, fared better in the end than the deal’s failure may have initially indicated.
Whether Adobe ever fully considered the impact of its own choices on the result is still up for debate. In a technical sense, the company’s portrayal of its departure as a regulatory setback is correct. In another version of the story, however, Adobe’s internal strategy—treating Figma as an existential threat in its own documents while simultaneously dismantling any product that could have competed with it—made the regulatory issue intractable even before the regulators showed up. There was no government office where the evidence against the deal was created. A year before anyone noticed, it was written within Adobe’s own premises.
In the larger story about Big Tech and antitrust overreach, that particular detail is often overlooked. Regulators are sometimes hostile. Reach of jurisdiction is debatable. However, the CMA’s main conclusion—that Adobe had ceased to compete with the business it was attempting to acquire—was not a theory. It was an established fact. It is a legitimate question of policy whether that warranted obstructing a $20 billion deal. It is less questionable whether Adobe contributed to the circumstances that led to its own rejection.
Adobe paid $1 billion in immediate fees and, according to most estimates, much more in opportunity costs as a result of the acquisition failure. The trajectory of Figma after its initial public offering (IPO) indicates that the difference between what Adobe paid and what it missed could eventually reach the tens of billions. It’s the kind of result that, looking back, appears to have been almost certain, which is typically an indication that it wasn’t.
