Adobe Inc agreed Thursday to buy Figma, a cloud-based designer platform, for $20 billion, raising concerns among investors about the hefty price tag that has caused the Photoshop maker’s market value to fall by more than $30 billion.
The cash-plus-stock deal, the largest acquisition of a private software startup, will give Adobe a company whose web-based design and brainstorming collaboration platform is featured in Zoom Video Communications, Airbnb Inc and Coin Bank.
Adobe CEO Shantanu Narayen called Figma’s business “the future of work” and said there is a “tremendous opportunity to combine it with the company’s products such as Acrobat, a document reader, and Figjam, an online whiteboard. “.
The $20 billion exit marks a major victory for Figma’s venture capital backers, including Index Ventures, Greylock Partners and Kleiner Perkins.
“This partnership will give Figma users access to Adobe’s photography, illustration and video technologies 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 and expects a return on investment of more than 100 times once the deal closes.
Adobe investors were less impressed, with the company’s shares falling 17 percent on Thursday. Many of them said they understood the rationale for the strategy but thought Adobe overpaid for a company valued at about $10 billion in a private funding round a year ago.
David Wagner, a portfolio manager and equity analyst at Aptus Capital Advisors, which owns 1.5 percent of Adobe, said Figma’s annual recurring revenue (ARR) of $400 million represents a fraction of Adob e $14 billion, which leaves Adobe paying an unreasonable 11 percent of its market capitalization and a 2.8 percent increase in ARR.
“We are disappointed with the price the company (Figma) paid,” Wagner said.
Adobe said it expects the deal to increase its earnings three years after completion. It added that Figma’s total potential market for design, whiteboarding and collaboration will reach $16.5 billion by 2025.
Adobe is one of the most acquisitive companies in Silicon Valley, having acquired a number of businesses over the years as it has sought to defend market share against competitors.
Before Figma, its biggest acquisition was the purchase of software maker Marketo for $4.75 billion in 2018.
In the past 24 months, it has acquired other companies to strengthen its focus on collaboration tools, including video collaboration software Frame.io, social media marketing startup ContentCal and collaboration tools maker Workfront.
The deal is expected to close in 2023, subject to regulatory approvals.
San Francisco-based Figma will continue to be led and operated independently by co-founder and CEO Dylan Field. Both companies will have to pay a $1 billion termination fee if the parties cancel the deal.
Meanwhile, Adobe’s fourth-quarter revenue forecast of $4.52 billion was lower than analysts’ estimates of $4.58 billion, according to Lufthansa data.
The company’s third-quarter profit fell nearly 6 percent, reflecting the blow of a stronger dollar and higher costs.