Adobe to buy Figma in $20 billion future of work bid that scares investors

The Adobe logo is seen on the smartphone in this illustration taken June 13, 2022. REUTERS/Dado Ruvic/Illustration

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Sep 15 (Reuters) – Adobe Inc on Thursday agreed to acquire cloud-based design platform Figma for $20 billion, sparking concerns among investors over the high price that led to a drop of more than 30 billions of dollars in the Photoshop maker’s market value.

The cash-and-stock deal, the largest takeover by a privately held software startup, will give Adobe ownership of a company whose web-based collaborative design and brainstorming platform is hugely popular among tech companies , including Zoom Video Communications (ZM.O), Airbnb Inc and Coinbase (COIN.O).

Adobe CEO Shantanu Narayen hailed Figma’s business as “the future of work” and said there were “tremendous opportunities” in combining it with his company’s offerings, such as the Acrobat document reader and the Figjam online whiteboard.

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The $20 billion outflow marked a major win for Figma’s venture capital backers, including Index Ventures, Greylock Partners and Kleiner Perkins.

“This partnership will allow Figma users to access Adobe’s photography, illustration and video technology, all in one place. And, in return, Figma can offer its deep expertise in building in the browser,” said Josh Coyne, a partner at Kleiner Perkins, who first invested in Figma in 2018, an investment that is expected to return more than 100x in return once the deal closes.

Adobe investors were less impressed, sending shares of the company down 17% on Thursday. Many of them said they understood the logic of the strategy, but argued that Adobe had overpaid a company valued at around $10 billion in a private fundraising just over a year ago.

David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors, which owns a 1.5% stake in Adobe, said Figma’s annual recurring revenue (ARR) was $400 million, a tiny fraction of $14 billion from Adobe, which makes it unreasonable for Adobe to pay. the equivalent of 11% of its market value for 2.8% more ARR.

“We are disappointed with the price paid for the company (Figma),” Wagner said.

Adobe said it expects the deal to be earnings accretive three years after closing. He added that Figma’s total addressable market will reach $16.5 billion by 2025 for design, whiteboard and collaboration.

Adobe is one of the most acquiring companies in Silicon Valley and has bought many companies over the years as it sought to defend its market share against competitors.

Before Figma, its biggest acquisition was software maker Marketo for $4.75 billion in 2018.

It has also bought other companies over the past 24 months to focus more on collaboration tools, including video collaboration software, social media marketing startup ContentCal and tool maker of Workfront collaboration.

The deal is expected to close in 2023, subject to regulatory approvals.

San Francisco-based Figma will continue to be led by co-founder and CEO Dylan Field and will operate independently. Either company will have to pay a $1 billion termination fee if it cancels the deal.

Meanwhile, Adobe’s fourth-quarter revenue forecast of $4.52 billion is lower than analysts’ estimate of $4.58 billion, according to Refinitiv data.

The company’s third-quarter profit fell nearly 6%, reflecting the hit of a stronger US dollar and higher costs.

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Reporting by Chavi Mehta and Tiyashi Datta in Bengaluru, Krystal Hu in San Francisco; Written by Anirban Sen; Editing by Sriraj Kalluvila, Aurora Ellis and Sherry Jacob-Phillips

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