As global watchdogs express concern about market consolidation, a lengthy antitrust investigation in Brussels is underway. Adobe’s $20bn deal to acquire rival Figma is set to face a lengthy antitrust investigation in the EU, in the latest move that threatens the software giant’s attempt to consolidate the digital design market.
Four people who have direct knowledge of this acquisition say that European antitrust regulators will launch an official investigation later this year. They are concerned the deal could lead to less innovation, and higher prices.
In the EU, a “phase one” investigation is conducted on many large acquisitions. This usually takes several months. Close to the situation, however, suggest that EU authorities intend to move forward with a “phase 2” more detailed investigation. This could take several months and ultimately sabotage the deal.
This is a further blow to the acquisition proposal, which has already been in the sights of regulators around the world. Last month, the UK launched an initial investigation into the deal while the US Department of Justice reportedly is preparing to file a lawsuit in order to block the transaction.
Figma, a cloud-based design tool, is one of the leading players in the industry, along with Australia’s Canva. It promises better performance than Adobe software, such as the image-editing system Photoshop.
Brussels regulators announced in February that the EU would have to clear the transaction, despite its European sales being so low as to not normally require an investigation. The EU justified this decision by stating that there were concerns that the deal “threatens significantly to affect competition on the market for whiteboarding and interactive product design software”.
Four people familiar with the EU’s thinking said that since then, regulators have become more concerned about the deal as a “killer acquisition” whereby a larger company purchases a smaller competitor to eliminate the competition.
Adobe is buying a competitor that has a good reputation, said a person who was familiar with the EU’s regulatory thinking. “It’s bad.”
Adobe’s bid for Figma values it at 50 times the annual recurring revenue. The company’s $20bn valuation was double what it was in 2021 when the private funding round was held. It was also a tenfold rise from its previous 2019 valuation.
Adobe stated earlier this year it would expect “lengthy reviews” as the scrutiny on tech deals worldwide intensified. Shantanu Narayen, the chief executive of Shantanu Narayen, has warned that blocking the merger would result in less investment for start-ups.
Adobe will argue that both businesses are in different markets. Adobe’s internal research showed that only 10% of Photoshop users also use Figma. This shows the low user overlap.
Adobe has not yet presented the deal to EU regulators for review. However, people familiar with the process say that the company can still avoid an extensive investigation if they provide compelling evidence in the next few months to counter their concerns.
The European Commission stated: “This transaction was not formally reported to the Commission.” It is up to the companies whether they notify a transaction that has an EU component and constitutes a merger or acquisition.
Adobe stated that it is still in preliminary talks with regulators from the EU, UK and US. However, it said it was “confident” in the merits and looked forward to a successful completion of the transaction.