Adobe's Figma Acquisition Fallout: $38 Billion in Losses and Counting

Adobe's failed acquisition of Figma for $20 billion has cost the company over $38 billion and counting. The deal fell apart due to regulatory scrutiny, and Adobe paid a record-breaking $1 billion break-up fee. Figma's subsequent IPO valued the company at nearly $68 billion, leaving Adobe on the sidelines of a hot tech story and facing a daunting task of playing catch-up in the collaborative design market.

Adobe's (ADBE) ambitious $20 billion bid to acquire cloud-based design juggernaut Figma (FIG) was set to reshape the creative software market. However, the deal collapsed due to regulatory scrutiny, leading to a record-breaking $1 billion break-up fee. This setback not only cost Adobe dearly but also paved the way for Figma's transformative IPO, which valued the company at nearly $68 billion, leaving Adobe on the sidelines of one of tech’s hottest stories.

The acquisition, agreed upon in 2022, would have seen Adobe pay $20 billion for Figma, bringing its market-leading collaborative design platform into the Adobe fold. However, mounting regulatory scrutiny in both Europe and the UK led to the deal's termination. Under the terms of the agreement, Adobe was required to pay Figma a reverse termination fee of $1 billion in cash [1].

Figma's subsequent IPO, priced at $33 per share, initially valued the company at around $19.3 billion, nearly matching Adobe’s original offer. However, market enthusiasm was overwhelming, and Figma's shares surged as much as 275% on debut, briefly pushing its market capitalization to nearly $68 billion, and settling around the $57 billion mark post-IPO [1].

The failed acquisition has had significant strategic consequences for Adobe. The company now faces the daunting task of playing catch-up as Figma grows ever more entrenched as the industry standard for UI/UX design. Additionally, Adobe's own competing tool, XD, must now go head-to-head against a much stronger, well-funded, and public Figma [2].

For Figma and its backers, the outcome has been transformational. The $1 billion break-up fee, paid in early 2024, was nearly triple the total capital Figma had raised in its lifetime. Now, the IPO’s blockbuster performance has created massive wealth for shareholders, employees, and even some nonprofits, validating Figma’s decision to remain independent [1].

Adobe's failed Figma bid stands as a watershed moment signaling increased regulatory scrutiny over Big Tech M&A. It illustrates the extraordinary risks—and costs—that now inherent for companies seeking to consolidate fast-growing market leaders. In the final analysis, Adobe’s $1 billion break-up fee was only the most immediate cost. The true price is the $37 billion value left unrealized, as Figma’s meteoric rise underscores both the promise and peril of betting on acquisition over innovation [2].

Investing during and right after an IPO is a risky time. The post-IPO run-up can see a stock soar many multiples, as is currently happening with Figma. This can result in massive gains for investors in a very short amount of time. The stock is up 8% today alone, and even investing right after their debut would have resulted in investors doubling their money at least. However, with that volatility comes immense downside risk as well. Many companies have seen similar momentum post-IPO only for the stock to pull back harshly, and take years to see those prices again [2].

FIG stock currently sits around $124, putting its market cap at $62 billion and P/E ratio at a little over 70. That’s incredibly rich, and it’s not uncommon to see heavy sell-offs after these big post-IPO runups. Valuations that rich aren’t usually sustainable.

References:
[1] https://www.ainvest.com/news/figma-ipo-regulatory-setbacks-strategic-independence-unlock-outsized-investors-2508/
[2] https://www.barchart.com/story/news/33817424/adobes-failed-acquisition-of-figma-has-cost-the-company-over-38-billion-and-counting-heres-how-high-it-could-go