UPDATE: U.K. Probes Adobe’s $20 Billion Bid for Figma

The U.K will likely open an in-depth review of Adobe’s $20 billion bid for rival Figma and EU regulators may do the same on August 7 after the phase I merger review deadline. Antitrust regulators’ concerns focused on the market for screen design software.

Rationale of the deal

Adobe, as the leading player in digital applications for imaging and design, offers a diverse range of products. These encompass well-established software such as Adobe Photoshop and Adobe Illustrator, as well as more recent web-native applications like Adobe Express. Figma, founded in 2012, holds the distinction of pioneering the first design tool specifically developed for the web, with a strong emphasis on web and mobile platforms. Figma’s platform facilitates seamless collaboration among various stakeholders, including creators, designers, developers, and marketers. It is precisely this multiplayer functionality of Figma what may significantly enhance the value proposition of Adobe’s Creative Cloud, particularly in the context of Adobe XD, where the two companies compete.

Chances of approval

Despite the regulatory challenges, the companies have good chances of obtaining the necessary approvals for the deal. It is important to note that Adobe’s flagship products, such as the Adobe Document Cloud Division (specifically Acrobat) and Adobe Analytics, will remain unaffected by the acquisition. While there is overlap between Adobe’s and Figma’s businesses in the realm of collaborative design software (and screen design software as defined by the CMA), it does not necessarily imply that the deal will result in higher prices or reduced competition within this segment. Other strong competitors in the market, such as Canva, Sketch or InVision are poised to exert sufficient competitive pressure, curbing any potential attempts by the merged company to increase prices or engage in anticompetitive bundling. Furthermore, the barriers to entry in the collaborative design software field are not insurmountable as emerging players in this market like Framer, Miro, Abstract, Overflow or Zeplin have proved.

Calendar

The companies have the potential to secure the necessary approvals by the conclusion of the current calendar year, despite the in-depth investigations in the U.K. and probably in the EU. Nevertheless, recent comments by David Wadhwani, Chief Business Officer at Adobe, during a company’s presentation indicates that the companies are still engaged in conversations with regulators and reviews have not yet concluded. In Europe, the European Commission received a formal notification on July 2 setting the statutory deadline for a phase I merger review in August 7. Yet, with the summer break around the corner, it is improbable that approval would be granted at the end of the phase I review.

Jurisdiction

Adobe and Figma are required to secure antitrust approvals from multiple jurisdictions before the deal can be finalized. Ongoing discussions are taking place with the U.S. Department of Justice, the European Commission, and the U.K. Competition and Markets Authority (CMA). In Europe, the European Commission has received a merger referral from 16 EU countries, prompting a review of the deal under Article 22 of the Merger Regulation. This referral stems from the fact that the proposed transaction did not meet the turnover thresholds specified by the EU Merger Regulation. Now, the parties will need to file in Brussels, rather than in the individual member states where the deal met national notification thresholds.

Precedents

A recent precedent in Europe may be helpful to understand the potential concerns regulators may have around this transaction. In Google-Photomath, cleared without conditions in March 28, 2023, the European Commission identified the overlap between the companies’ activities in online homework and study help tools that include a maths offering. But it concluded that the parties’ combined market shares were limited and there were many alternative players. The Commission also found that the integration of Photomath into Google’s general search service would not strengthen Google’s position in this market.

In Adobe-Figma, the analysis of the combined market share and the role of other competitors may warrant an in-depth analysis. Figma is arguably among the top 5 players in collaborative design and competes directly with Adobe. Besides, if regulators were to find anticompetitive concerns, remedies will be difficult to craft since any structural remedy (i.e. selling either Adobe XD or Figma, FigJam) could derail the deal. In other words, is an all-or-nothing transaction.