Adobe will spend $20 billion to buy Figma in a bet on the future of work that scares investors.
Adobe Inc. agreed on Thursday to buy the cloud-based designer platform Figma for $20 billion. Investors were worried about the high price tag, which caused the market value of the company that makes Photoshop to drop by more than $30 billion.
The cash-and-stock deal, which is the biggest buyout of a privately-owned software startup, will give Adobe (NASDAQ:ADBE) ownership of a company whose web-based collaborative platform for designs and brainstorming is widely used by tech companies like Zoom Video Communications (NASDAQ:ZM), Airbnb Inc., and Coinbase (NASDAQ:COIN).
Shantanu Narayen, the CEO of Adobe, called Figma’s business “the future of work” and said there were “tremendous opportunities” to combine it with Adobe’s products, like the document reader Acrobat and the online whiteboard Figjam.
The $20 billion exit was a huge win for Index Ventures, Greylock Partners, and Kleiner Perkins, which helped fund Figma.
“With this partnership, Figma users will be able to use Adobe’s tools for photography, illustration, and video all in one place. In exchange, Figma can offer its extensive knowledge of building in the browser. Josh Coyne, a partner at Kleiner Perkins, who invested in Figma for the first time in 2018, said that he expected to get more than 100 times his money back once the deal was done.
Thursday, Adobe’s stock fell by 17% because investors were less impressed with the company. Many of them said they understood the reasoning behind the strategy, but they said Adobe paid too much for a company that was valued at about $10 billion in a private fundraising round a little over a year ago.
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David Wagner, portfolio manager and equity analyst at Aptus Capital Advisors, which has a 1.5% stake in Adobe, said that Figma’s annual recurring revenue (ARR) was $400 million, which was a very small part of Adobe’s $14 billion, so it wouldn’t make sense for Adobe to pay the equivalent of 11% of its market value for 2.8% more ARR.
Wagner said, “We’re disappointed with the price that was paid for the company (Figma).”
Adobe said that it thought the deal would add to its profits three years after it was done. It also said that Figma’s total market size for design, whiteboarding, and collaboration would reach $16.5 billion by 2025.
Adobe is one of the most acquisitive companies in Silicon Valley. Over the years, it has bought many companies to protect its market share from competitors.
Before Figma, it bought the software company Marketo for $4.75 billion in 2018. This was its biggest purchase.
It has also bought other companies in the past 24 months to focus more on collaboration tools, such as video collaboration software Frame.io, a startup for social media marketing called ContentCal, and a company that makes collaboration tools called Workfront.
The deal is expected to go through in 2023, if all the rules are met.
Figma, which is based in San Francisco, will still be led by co-founder and CEO Dylan Field and run on its own. If either company backs out of the deal, they will have to pay a $1 billion fee.
Refinitiv data shows that Adobe’s estimate for fourth-quarter sales, $4.52 billion, was less than what analysts had predicted, $4.58 billion.
The stronger U.S. dollar and higher costs hurt the company’s third-quarter profit by almost 6%.
