Adobe’s $20 billion acquisition of Figma for Dynamic Work Future

The acquisition of Figma will give Adobe a major foothold in the rapidly growing market for cloud-based collaboration tools.

Adobe’s $20 billion acquisition of Figma signals a shift in the company’s focus from traditional design tools to tools for the modern workplace. This move will likely have a major impact on the future of work, as more and more companies adopt cloud-based collaboration tools. With its powerful suite of products, Adobe is well-positioned to become the leading provider of cloud-based collaboration tools. Adobe’s Photoshop, Lightroom, and Reader products are widely used by professionals in a variety of fields, and the company’s ownership of Figma will give it a significant presence in the growing market for cloud-based collaboration tools. Figma is a design platform for creating, collaborating and sharing design prototypes. Figma is a browser-based collaborative design tool that allows teams to work together in real-time from anywhere without installing any software on their computer or mobile device.

What is a Figma used for?

Figma is a cloud-based designing tool that enables real-time collaboration between designers. It is used by designers to create digital prototypes of their designs, which can then be shared with others for feedback and collaboration.

Figma is an online tool for designing everything from websites to logos to animation. Figma allows you to easily create wireframes, mockups, user flows and more, then share them with your team and clients with just one link.

Figma, founded in 2012, is a design application tool you can use to create websites, apps, or even logos. It also allows real-time sharing on the same file, which users can open in their browers. In Adobe Photoshop, for example, in order for designers to share their work, they’d have to send the image file through email. And collaborators can’t work in the file at the same time. With Figma, Adobe will be able to tap into collaboration tools, which has become a standard in the current remote and hybrid work environments.

Adobe Chief Executive 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 document reader Acrobat and online whiteboard Figjam.

Investors were not persuaded, driving down Adobe’s stock by 17%. Many of them said they understood the rationale around the strategy but argued Adobe overpaid for a company that was valued at about $10 billion in a private fundraising round a little 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 was a tiny fraction of Adobe’s $14 billion, making it an unreasonable for Adobe to pay the equivalent of 11% of its market value for 2.8% more ARR.

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

Adobe said it expected the deal to be accretive to its earnings three years after its completion. It added that Figma’s total addressable market would reach $16.5 billion by 2025 across design, whiteboarding and collaboration.

“When we think about the future of what’s happening with creativity, and in a sense, what’s going to happen as it relates to multiple people engaging in that with respect to collaboration, we just believe that this is going to be an incredible value and a way to attract a whole bunch of new customers to the combined platform,” Adobe CEO Shantanu Narayen said during the company’s quarterly earnings call on Thursday. The transaction, which is the company’s largest acquisition, is expected to close in 2023, pending regulatory approvals, Adobe CFO Dan Durn said. The $20 billion would be paid in cash and stock, “and if necessary, a term loan, to be paid down from our operating cash flows following the closing,” he said.

The cash-and-stock deal, the biggest ever buyout of a privately-owned software startup, will give Adobe ownership of a company whose online collaborative platform for designs and brainstorming is used by firms ranging from Zoom Video Communications to Airbnb Inc and Coinbase.

Adobe is one of the most acquisitive companies in the Silicon Valley and has bought numerous businesses over the years, as it has looked to defend market share against competitors such as Microsoft.

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

Figma’s products “address a $16.5 billion market opportunity,” and this year, they’re expected to add $200 million in net new ARR [annual recurring revenue], surpassing $400 million in total ARR by the end of the year,” Durn said. The acquisition is “primarily about creating new markets, expanding adjacent opportunities, and accelerating growth,” he said. “In years one and two after the closing, the transaction will be dilutive to Adobe’s Non-GAAP EPS, and we expect it to break even in year three and accretive at the end of year three,” Durn said.

The deal is expected to close in 2023 and San Francisco-based Figma will continue to be led by co-founder and Chief Executive Dylan Field. Either company will have to pay a termination fee of $1 billion if they scrap the deal.

Meanwhile, Adobe’s fourth-quarter revenue forecast of $4.52 billion came in below the $4.58 billion estimated by analysts, according to Refinitiv data.

In its latest quarterly results also announced on Thursday, Adobe reported net income of $1.14 billion on revenue of $4.43 billion. This reflects an increase of 13% year-over-year. Regarding the Figma acquisition, an analyst questioned whether it would have meaningful impact for the future.

“It’s not unprecedented for Adobe to purchase a dynamic competitor,” Jay Vleeschhouwer of Griffin Securities said on the call. “We can go back many years, you’ve done this before. Maybe put this in the context of some of those prior acquisitions, where you bought a competitor that had meaningful, either competitive impact or complementary technology.”

“It’s all about, ‘How do you take things that might seem competitive but are actually more complimentary and expand the nature of the market?’” Narayen said in response. “For me, when I think about what we did with Macromedia, it was really about saying, ‘We’re going to target more graphics professionals and not just focus on imaging. We’re going to focus on what’s happening with video on the web or gaming. And so I think it was an expansive part of how we looked at it. And that’s the same situation here.”

Narayen also said, “I think the opportunities are tremendous. I understand that there will be some sentiment associated with the price, and the ball’s in our court to go demonstrate how we execute against our current initiatives, as well as to demonstrate the value of this new one.”

Third-quarter profit also fell nearly 6%, reflecting the hit from a stronger dollar and higher costs.

 

 

 

 

 

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