Mid-life crisis? Adobe puts Figma on its arm for $20 billion

Creative technologies giant Adobe Inc has announced the acquisition of Web-first collaborative interface design platform, Figma, in a 50:50 cash and stock deal worth $20 billion – one of the largest this century.

San Jose headquartered Adobe, maker of Photoshop, InDesign, Acrobat, and other tools in a Creative Cloud used by media professionals, announced the “definitive merger agreement to acquire” Figma yesterday. The language positions Figma as an equal.

Adobe’s David Wadhwani, President of Digital Media, explained:

The combination of Adobe and Figma is the perfect ‘better together’ opportunity. [It] will create new opportunities and accelerate our strategy in a few ways. Adobe and Figma now have a new opportunity to make content creation more efficient, collaborative, and fun by bringing together Adobe Express, Acrobat, and FigJam, an online whiteboarding solution for teams. 

Second, accelerating creativity on the web. Figma’s web-based, multi-player platform can accelerate the delivery of Adobe’s Creative Cloud technologies on the web, making the creative process accessible to more people. This will dramatically increase Adobe’s reach and addressable market opportunity.

Again, the language is instructive: using gaming terminology to describe creative workflows in the cloud. He continued:

Third, advancing product design, web, and mobile applications are increasingly underpinning how we live and work. The combination of Adobe and Figma will benefit all stakeholders in the product design process, from designers to product managers to developers.

And fourth, the combination of our communities will bring designers and developers closer together to unlock the future of collaborative design. Adobe and Figma could not be a better match.

Wadhwani then revealed discussions with one of Figma’s two founders, CEO Dylan Field. He said: 

From the beginning of the conversations with Dylan, the primary focus has been on things that we couldn’t do individually. We have this incredible wealth of technology and expertise around illustration, video, imaging, photography, and 3D, all coming from the lens of our flagship applications, and [Figma] have built such a rich platform for collaboration.

Bringing these things together allow us to re-imagine what creative content creation should look like in the future by taking our technology, integrating it on top of or building it on top of the Figma platform, and then enabling a whole set of new use cases that would never have happened were it not for this combination.

Exciting stuff, but also troubling, as it would seem to be an admission that despite Adobe’s long progress from the desktop into the cloud, it has somehow failed to build a popular platform for collaboration itself – or at least, one that people like. 

Anecdotally, some long-term users of Adobe products lament the cloud experience, the odd and onerous workloads it adds to the desktop, the endless automated updates, and the sometimes-aggressive sales and licensing tactics. Anyone who might simply want Photoshop or Premiere Pro might find themselves looking at alternatives.

Our assessment

The deal is certainly a meeting of two very different eras of software-assisted design. Adobe was founded in December 1982 and grew through packaged applications in the earliest days of desktop publishing, through the Creative Suite, then fully into the cloud age as a SaaS platform of integrated tools. Forty years later, Adobe has revenues of $15.78 billion (FY 2021).

Founded 30 years later in 2012, and launched as recently as September 2016, Figma is the offspring of two clubbable computer science students, Dylan Field and Evan Wallace, from private Ivy League research institution, Brown University. 

The pair quickly attracted millions of dollars in seed and venture capital, most recently $200 million in Series E funding in June 2021. Figma was already a unicorn by Spring 2020, valued at $2 billion, and a year later was valued at $10 billion. Adobe’s purchase has doubled that asking price and made its young founders billionaires. According to yesterday’s announcement, Figma will have a total addressable market of $16.5 billion by 2025 – less than Adobe paid for it.

So, Figma has all the hallmarks of a market meteor: a good idea spun into a strong brand name by two well-connected tech bros. The kind of venture that quickly accumulates wealthy backers and an insane valuation: more than 400 times its own revenues, $5 billion more than Adobe’s annual revenue, and more than four times Adobe’s annual profit. (It’s wise to remember that meteors go down, not up, and are visible when they burn up.)

Fantastic news for Field and Wallace, and great for Figma’s backers who can pat themselves on the back for a brilliant investment. But what do Adobe’s shareholders make of it? Not much: at the time of writing and after years of steady growth, Adobe’s market cap has fallen by over 46% year on year, and by nearly 17 percent in 24 hours. The clear message: an over-the-odds payment. 

So is Adobe, which turns 40 at Christmas, having a mid-life crisis, buying the software equivalent of a red roadster? The venerable company certainly has a high opinion of itself, though few would deny it has released some epochal products and file formats over the years. It says: 

The digital economy runs on Adobe’s tools and platforms, and throughout its history, the company’s innovations have touched bIllions of lives across the globe.

Adobe Chair and CEO Shantanu Narayen added:

Adobe’s greatness has been rooted in our ability to create new categories and deliver cutting-edge technologies through organic innovation and inorganic acquisitions. The combination of Adobe and Figma is transformational and will accelerate our vision for collaborative creativity.

But does the digital economy really run on Adobe? It’s an overstatement, surely: a bit like saying a gourmet meal consists entirely of the carrots.

Figma’s mission, meanwhile, is:

To help teams collaborate visually and make design accessible to all. Today, it is making it possible for everyone who designs interactive mobile and web applications to collaborate through multi-player workflows, sophisticated design systems and a rich, extensible developer ecosystem. Figma has attracted a new generation of millions of designers and developers and a loyal student following.

My take

The last sentence may be the tell behind the deal: Adobe can feel the Earth turning and a young generation eyeing something cooler and better looking – a company that’s one of them – so the middle-aged corporation wants to be seen with Figma on its arm. 

The announcement added:

The combined company will have a massive, fast-growing market opportunity and capabilities to drive significant value for customers, shareholders. and the industry.

We’ll see, won’t we?