Adobe has agreed to buy design software company Figma for roughly $20bn, sending a jolt through a sector that has been among the hardest hit in the tech sell-off that began late last year.
San Francisco-based Figma, which was founded in 2012, allows software developers and designers to collaborate remotely and design everything from slides for presentations to user interfaces on mobile apps.
Along with Australian start-up Canva, it is part of a wave of new browser-based design tools that have opened up the creative process to millions of non-designers, expanding the market and presenting a potential threat to Adobe, the traditional leader in software design.
The purchase price, which will be paid half in cash and half in stock, is double what Figma was valued at in its most recent private funding round last year and 10 times its valuation in 2019, despite the recent collapse in software stocks. It values the company at 50 times its annual recurring revenue, which Adobe said would top $400mn in 2022.
Acquisitions at multiples of 50 times revenue and higher were common in the software boom that peaked during the pandemic, but multiples for most companies have dropped back below 20 this year and acquisitions have become scarce.
The big premium contributed to a sharp fall in Adobe’s stock price early on Thursday, which was triggered by a cautious earnings forecast from the company. The downbeat projection wiped 16.8 per cent, or $29bn, from its value.
At the time of signing, the acquisition was the most expensive ever of a US private company, topping Facebook’s $19bn purchase of WhatsApp in 2014. The sharp decline in Adobe’s stock price pushed the value of the Figma deal down to $18.3bn by the end of Thursday.
“People in this environment are asking, ‘why large deals?’ There are questions,” said Shantanu Narayen, Adobe’s chief executive. But he claimed Figma would be a “transformative” deal for Adobe and that its browser-based approach and collaborative tools would boost the company’s overall market.
Danny Rimer, a partner at Index Ventures, who says it is Figma’s biggest investor, said the company was on track for an initial public offering before talks with Adobe began.
Figma chief executive Dylan Field came up with the idea for the company after dropping out of Brown University with co-founder Evan Wallace at the age of 19, after accepting a $100,000 grant from Peter Thiel, the libertarian financier. Thiel began offering 20 “fellowships” a year more than a decade ago after deciding that the best scientists and entrepreneurs were wasting their time getting a traditional university education.
The idea that sophisticated design tools could be delivered in a web browser was widely dismissed when Figma started out, Field told the Financial Times, adding: “Literally no one thought we could do it.”
The company’s web-based tools would give Adobe a better shot at the “more modern, cloud based, composable and open future” that was opening up for design software, said Liz Miller, an analyst at Constellation Research.
The merger will allow Figma to bring Adobe’s capabilities in imaging, 3D and video on to its platform, said Adobe. The company is looking to tap into the millions of customers using Figma, which enjoyed a boom during the pandemic as staff worked remotely. Its clients include Twitter, News UK, Google and Netflix.
In its third-quarter results announced on Thursday, Adobe posted net income of $1.1bn on revenues of $4.4bn, 13 per cent growth year-on-year or 15 per cent on a constant currency basis.