Adobe buying Figma: why $20bn, and why now?

The biggest “shock” deal in town of 2022. It has been reported that Adobe is to acquire Figma for a whooping $20bn (cash & stock). So why would Adobe make this move now? $20bn is about 50x Figma’s current revenue. Why “overpay” for something in the market where all stocks are trending down?

Here is some background information on both companies, and the reasons behind this deal.


Figma
  • A browser-based graphics editing tool that allows teams to collaborate in real time while developing UI and UX designs.
  • Work on Figma began in 2012 by Dylan Field & Evan Wallace.
  • The founders played around with different ideas at first: drones, memes generator, 3D design, etc., before getting to the current concept.
  • It was meant to be “Photoshop in the browser” (reminds you of anyone? Khm, khm, Canva).
  • In the early days, Figma was a lot of projects that were not connected with each other: Color Lines, Photo Editor, Image cutting and others.
  • Field was named a Thiel Fellow in 2012, earning him $100,000 in exchange for taking a leave of absence from college.
  • It was launched in in 2016, with the demo available through exclusive invites in December 2015.
  • The company raised the first round in 2013 – $3.8mln in seed funding.

Adobe
Adobe Founders
Source: https://www.dpreview.com/news/5486091936/video-from-its-origins-to-a-harrowing-kidnapping-the-story-of-adobe
  • Founded in 1982 by John Warnock and Charles Geschke.
  • Original product: Adobe PostScript page description language that allowed for the application of graphic arts standards to office printing.
  • Steve Jobs attempted to buy the company for $5 million in 1982. After facing pressiure from investors Warnock and Geschke agreed to sell Jobs 19% of the company.
  • In the mid-1980s, Adobe entered the consumer software market with Illustrator, a vector-based drawing program for the Apple Macintosh.
  • 1989 – Photoshop is released.
  • 1991 – Adobe Premiere is released.
  • In December, 2020, Adobe announced its US$1.5bn acquisition of Workfront, a provider of marketing collaboration software.
  • At the end of 2021, Adobe completed its acquisition of Frame.io, a leading cloud-based video collaboration platform, for a reported $1.275 bn.

…and, of course, on 15th fo September 2022, Adobe announced that it has reached an agreement with Figma, to acquire the latter for £20bn.


Why this deal?

If you have read our previous case studies on acquisitions by Apple, Facebook, and others, there are usually 2-3 main reasons behind any acquisition.

One

Improve your company’s market positioning. As far as huge conglomerates go, Adobe has been stale for a while now, and a lot of times, when you hit the product development stone wall, the only way forward is acquisition. Acquisition of Workfront in 2020 (see above) is just one of the examples of Adobe dipping its toes in the design collaboration market. Figma is one of the strongest (if not the strongest) players on the market in that sense. Absorbing a company like that has endless benefits for Adobe.

Two

Improve your financial position. In its third-quarter results, Adobe posted net income of $1.1bn on revenues of $4.4bn, 13 per cent growth year-on-year or 15 per cent on a constant currency basis according to the FT. As far as numbers go, this milking machine never stopped working.

According to Adobe: “(Figma) is expected to add approximately $200 million in net new ARR this year, surpassing $400 million in total ARR exiting 2022, with best-in-class net dollar retention of greater than 150 percent. With gross margins of approximately 90 percent…” (quote from here).

While Adobe is not struggling, the above is certainly a great trajectory for its new addition. Do build on top of that would mean adding more value to the enterprise overall. Worth $20bn? Possibly.

Three

Goodbye competition. It is no secret that Figma and my favourite, Canva, have been stepping on Adobe’s toes. Easy to navigate, user-friendly, free-to-use – all of these are not exactly Adobe’s strong points.

On top of the above, we need to remember Adobe’s long-term biggest clients. Mac and PC. Apple and Microsoft. The latter’s employees reportedly have loved using Figma, which is just not cool in Adobe’s view. Removing the competition, as per usual, helps monopolise the market that they are targeting.

All in all, the acquisition looks like a great win for Adobe and its acting CEO, Shantanu Narayen. It would be interesting to see how it progresses from here. For Figma, the question remains if it can continue to grow and innovate now under the arm of its Big Brother.


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Adobe buying Figma: why $20bn, and why now?

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