UK competition watchdog threatens deeper probe of Adobe's $20B Figma deal

Vendors have days to answer cost and innovation concerns, may face potential delay to merger... or worse

Adobe's aim to complete its $20 billion purchase of web-first collaboration design startup Figma by the end of the year is less certain after Britain's competition regulator referred the deal for a deeper probe on concerns it'll reduce innovation.

Word of the eye-wateringly expensive buy first came in September last year and has since attracted the attention of the Justice Department, which is planning to block the sale, as well as EU authorities.

The UK's Competition and Markets Authority started to explore implications of thr merger in December, and today said it had identified concerns in the "supply of screen design software, where Adobe's and Figma's products compete" – a dynamic it fears is likely to change post-sale.

Figma offers a browser-based app which manages file organization by showing projects and related files in a dedicated format. The vector-based graphic editor and prototyping tool requires no installation, patching, or updates. The business launched in 2016 and has sucked up $332.9 million in funding.

There are around four million users of Figma services, many drawn initially by its freemium pricing and lightweight interface. Some fear Adobe will merge its rival XD software with Figma and raise subscription costs. Figma's founder and CEO has denied this is a prospect and says the platform will remain free in education.

Another concern highlighted by the CMA is that the merger may reduce the software vendors' incentives to invest and compete with each other, potentially meaning reduced competition and innovation, as well as higher costs.

In a statement, Sorcha O'Carroll, senior merger director at the CMA said:

"Products sold by Adobe and Figma are critical for the development of digital services that people and businesses use on a daily basis – be that popular apps and websites selling anything from holidays to streaming the latest movie.

"We're worried this deal could stifle innovation and lead to higher costs for companies that rely on Figma and Adobe's digital tools – as they cease to compete to provide customers with new and better products.

"Unless Adobe can put forward viable solutions to our concerns in the coming days, we will move to a more in-depth investigation," O'Carroll added.

CEO Shantunu Narayen said in March the company was anticipating the buy of Figma closing before the end of 2023. "We are preparing for integration as we work through the regulatory process. From the outset, we have been well prepared for all potential scenarios while realistic about the regulatory environment.

"We have completed the discovery phase of the US DoJ's second request and are prepared for next steps, whether that is an approval or a challenge. Adobe remains confident in the facts underlying the case. And based on current process timing, we believe the transaction continues to be on track for a close by the end of 2023."

The CMA has greater powers since the UK broke away from the EU, and on competition grounds has so far blocked Meta's buy of Giphy, a costly loss to Zack's company, and held up Microsoft's $69 billion purchase of Activision Blizzard. Ben Barringer, equity research analyst at Quilter Cheviot, opined: "The news that the CMA wants to refer this deal to a deeper probe should not come as a surprise.

"As the tech industry has matured, regulators are responding by being a lot pickier with the deals they will approve. If the Facebook purchase of Instagram happened today then it likely would have been blocked, and it is this environment that the likes of Adobe may find themselves struggling to navigate."

Barringer said the deal, "as important as it is for Adobe, was always going to struggle to meet the high bar set by the CMA" and noted that it made sense for the software giant to buy Figma as collab tools become more important post-COVID. He noted, though, that "it will be difficult to satisfy the CMA and, as such, structural remedies will be required to get it through.

"This may mean that the deal no longer becomes as attractive for Adobe, but we will need to see their response first to see what avenues they believe they have. For investors in Adobe, this will be a cloud hanging over the company for a considerable period of time and if they were not to end up buying Figma it would leave the company deficient in this fast growing product area."

Adobe told The Register: "We remain confident in the merits of the case as Figma's product design is an adjacency to Adobe's core creative products and Adobe has no meaningful plans to compete in the product design space. We look forward to establishing these facts in the next phase of the process and successfully completing the transaction." ®

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