Adobe’s $20 billion deal to buy rival Figma will face a lengthy antitrust probe in the European Union, the latest move to threaten the software giant’s entrenchment of the digital design market.
European antitrust regulators are preparing to launch a formal investigation into the acquisition later this year, fearing the deal will lead to less innovation and higher prices, according to four people with direct knowledge of the move.
Many large takeovers are subject to a trial, known in EU circles as a “phase one” investigation, which typically takes months to complete. But EU authorities plan to move forward with a more detailed “phase two” investigation, which could take months and could end up breaking the deal entirely, people familiar with the matter said.
The move is another blow to the proposed takeover, which has already been targeted by regulators around the world. Britain launched a preliminary investigation into the deal last month, and the U.S. Justice Department is also reportedly preparing a lawsuit to block it.
Along with Australia-based Canva, Figma is a leading maker of cloud-based design tools that outperform Adobe’s software, including Photoshop, the image-editing system that has dominated the market for years.
In February last year, Brussels regulators said the deal still needed EU approval, although the deal’s European sales were too low to normally warrant an investigation. The EU defended the decision, saying there were concerns that it “could seriously affect competition in the interactive product design and whiteboard software markets”.
Since then, regulators have grown increasingly concerned that the deal represents a so-called killer takeover, in which a large company acquires a smaller rival to eliminate competition, said four people familiar with the EU’s thinking.
“Adobe is trying to acquire a credible competitor,” said a person with direct knowledge of the EU regulator’s thinking. “It’s not good.”
Adobe is quoting Figma at 50 times the company’s annual recurring revenue. The $20 billion valuation is double the company’s valuation in a private funding round in 2021 and ten times its 2019 valuation.
Adobe said earlier this year that it expected a “lengthy review” of the deal as global scrutiny of technology deals increases. Chief executive Shantanu Narayen has warned against blocking the merger, telling the Financial Times earlier this month that the regulator’s action would lead to less investment in start-ups.
The company will argue that the two companies operate in different markets. Multiple people briefed on Adobe’s defense said internal research found that only 10% of Photoshop users also use Figma, underscoring the limited user overlap.
Adobe has yet to submit the deal to EU regulators for review, and people familiar with the matter said the company could still avoid an in-depth investigation if it provides convincing evidence in the coming months to allay their concerns.
The European Commission said: “The transaction has not been formally notified to the Commission. If a transaction constitutes a concentration and has an EU scope, it is always the company that notifies it.”
Adobe said it was still in preliminary discussions with regulators in the EU, UK and US, but it remained “confident on the merits of the case and looks forward to a successful transaction”.
Additional reporting by Cristina Criddle in London