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Regulator scrutiny is making tech M&A more onerous. Antitrust probes in the UK and EU have put a stop to Adobe’s $20bn deal to buy Figma. Amazon’s purchase of iRobot is under threat. With initial public offering markets still quiet, investor exits are hard to come by.
Adobe hoped to buy innovation via design software company Figma. Figma’s cloud-based collaboration tools lets creative professionals work together in real time. But regulators pointed to an overlap in products and Adobe’s dominant position in design software, which includes Photoshop and Illustrator products.
Where Europe leads, the US is following. The deal collapse coincides with the release of new guidelines from the US Justice Department and Federal Trade Commission that take a tougher stance on M&A. Smaller acquisitions may soon receive more inspection.
Regulators hope this will lead to greater market competition. It is possible, however, that curbing M&A will reduce incentives for investors to back early-stage companies, handing a greater advantage to incumbents.
On the plus side, regulator meddling can sometimes save companies from unpopular deals. Adobe’s share price rose 2.5 per cent after the Figma deal was called off. This is despite the fact that it must pay a $1bn termination fee and invest in its own design collaboration tool, XD.
The payment will help Figma if it opts to list on markets. Still, it may not find a $20bn valuation. If valued on a similar sales multiple to Adobe it would be below $9bn.
Adobe was willing to value Figma at 50 times forward revenue — five times more than peers. The high price set a record just as stocks were falling. Desperation is off-putting. Adobe’s own share price fell by more than a fifth in response — a market cap loss that exceeded Figma’s sticker price.
Since then, Adobe stock has recovered. This had little to do with Figma. Investors are more interested in the possible market for generative artificial intelligence product Firefly. Expect money saved on Figma to be committed to AI.
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