The News: Adobe and Figma, the product design platform, announced that they are mutually terminating their merger agreement in which Adobe would have acquired Figma for $20 billion. As a result of the termination, Adobe will be required to pay Figma a reverse termination fee of $1 billion in cash. “Adobe and Figma strongly disagree with the recent regulatory findings, but we believe it is in our respective best interests to move forward independently,” said Shantanu Narayen, chair and CEO, Adobe. “While Adobe and Figma shared a vision to jointly redefine the future of creativity and productivity, we continue to be well positioned to capitalize on our massive market opportunity and mission to change the world through personalized digital experiences.” Adobe’s full statement on the decision is available on its website.
Lessons from the Adobe-Figma Kerfuffle
Analyst Take: Industry regulators and antitrust watchdog organizations play crucial roles in helping markets remain competitive and fair, and they generally do their jobs well. Not all regulatory and antitrust action is misplaced, far from it, but institutions, just like the people who fill their halls, are not infallible. Political agendas, zeal and bias can cloud viewpoints and steer even the most well-intentioned regulators astray, causing them to overshoot their mandates, overreach their authority, or just completely miss the mark. The Adobe-Figma deal looks to me like yet another example of one of those unfortunate errors.
Adobe’s acquisition of Figma should have been approved by regulators. The synergies between the two companies were obvious to the market, and folding Figma into Adobe’s portfolio would have resulted in a net positive for users and the industry as a whole, with little to no tangible downside.
Regulators, in this case the UK’s Competition and Markets Authority (CMA) in particular, were concerned about what they saw as Adobe’s near-monopoly in the design software market. More specifically, the fear was that an Adobe acquisition of Figma would, on the one hand, consolidate Adobe’s “near-monopoly” in the space, and on the other, potentially harm the type of innovation that would have naturally occurred were Figma to remain independent.
On its face, the CMA’s theory of the case is shaky at best: For starters, a “near-monopoly” is not a monopoly. Second, success in a market, reflected by market share leadership and a high degree of user preference are not, in and of themselves, evidence of monopolistic or anticompetitive behavior. Third, there is no evidence whatsoever that Figma would not continue to innovate under Adobe’s care. In fact, one could argue that Figma could become even more innovative within Adobe’s ecosystem.
Finally, I do not believe the CMA ever made a compelling argument for consumers or the market being harmed by the acquisition, let alone how that harm would manifest itself: Less innovation? No. Higher prices? No. Less access to platforms and services? No. Fewer opportunities for startups and competitors to differentiate themselves and innovate? Again, no. In my view, the CMA went fishing for antitrust concerns that it could never substantiate.
Note that issues of monopoly and competition are not treated or viewed in the same way in the US as they are in the UK and the EU: Recent rulings in US appellate courts (FTC v Qualcomm and Epic v Apple, for instance) have affirmed that success in a marketplace, even extreme success, does not constitute a monopoly or monopolistic behavior. Achieving a majority share of a market or market segment by delivering better products, services, value, and execution is seen as the natural result of a healthy competitive ecosystem rather than a symptom of a corrupted one. After all, competition breeds winners and losers, and punishing companies for their success is, ironically, an anticompetitive behavior that regulators regularly stumble into.
Success in competitive markets is perceived differently on the opposite side of the Atlantic, however, with the CMA and the European Commission (EC) in particular often making the case that success that leads to any sort of market imbalance, even when driven by fair competition, needs to be pushed back against to allegedly “restore the conditions of competition” (or rather, attempt to engineer a market share equilibrium in which no single company is too dominant). This behavior is sometimes exacerbated by protectionist impulses, which often motivates regulators to target non-EU tech giants with probes and M&A roadblocks so as to artificially level the playing field for rival European firms.
That said, regulators have a duty to prevent oligopolies from calcifying by way of anticompetitive market consolidation (in which market leaders acquire every startup or rival they can to deliberately stifle competition) and telling those types of M&A efforts from those that just make sense can sometimes be difficult. Bias is the enemy of nuance, after all, and regulators often read motives and potential market impact incorrectly. (Not every acquisition and merger should be treated as anticompetitive by default.) I feel that perhaps the Adobe-Figma deal might be the latest example of that type of scoping error by a regulator.
The remedies proposed by the CMA to make the acquisition go through, which included substantial divestments of resources, assets, and even source code to “restore the conditions of competition” seemed both counterproductive and unnecessarily severe. To make matters worse, the EC and the US Department of Justice (DOJ) were also reportedly looking into launching adjacent investigations, which would have monopolized so much of Adobe and Figma’s time, bandwidth, and resources that going forward with the deal was just not worth the trouble. Both parties decided to abandon the opportunity, and that is a shame because this probably was not the type of acquisition that would have caused harm to competition or to technology users. In my view, the CMA misjudged and overreached, and both the EC and DOJ seemed on track to at least attempt to make the same error.
Missed opportunity for Adobe and Figma aside, I worry that this type of regulatory overreach, especially if it signals a trend, could have a cooling impact on investments in technology startups, and particularly those slated for acquisitions by large firms. If the VC community begins to expect regulators on both sides of the Atlantic to block the acquisition of high growth companies by dominant firms in the tech sector, they could be less likely to invest in startups. What antitrust regulators still seem confused about is that not all startups hope to grow into the next Google or Meta or Adobe. Most, in fact, have no interest in competing head to head with market incumbents and instead operate under the assumption that their value lies in eventually being acquired by large firms. Too much interference from regulators can throw a wrench in the VC ecosystem’s ROI equation and throw it out of balance.
If a significant enough drawdown of VC funding were to happen at scale, the US startup and innovation ecosystem would take the biggest hit. Large incumbent tech firms would be the primary beneficiaries of this lack of new competitors entering the market. The irony here is that by interrupting the organic flow of M&As in the tech sector, regulators risk causing significantly more harm to competition (and innovation) than if they simply allowed most M&As to take place organically and narrowed their focus to M&As that present real, substantial, provable threats to competition in their respective markets.
Disclosure: The Futurum Group is a research and advisory firm that engages or has engaged in research, analysis, and advisory services with many technology companies, including those mentioned in this article. The author does not hold any equity positions with any company mentioned in this article.
Analysis and opinions expressed herein are specific to the analyst individually and data and other information that might have been provided for validation, not those of The Futurum Group as a whole.
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Author Information
Research Director Olivier Blanchard covers edge semiconductors and intelligent AI-capable devices for Futurum. In addition to having co-authored several books about digital transformation and AI with Futurum Group CEO Daniel Newman, Blanchard brings considerable experience demystifying new and emerging technologies, advising clients on how best to future-proof their organizations, and helping maximize the positive impacts of technology disruption while mitigating their potentially negative effects. Follow his extended analysis on X and LinkedIn.
