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Does The Purchase Of Figma Make Sense For Adobe?

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Figma, a provider of cloud-based design software, was recently acquired by Adobe (NASDAQ:ADBE) for $20 billion. Adobe considers Figma as a strategic acquisition that will alter the course of the business in the years to come.

For Adobe, Figma appears to be the final missing piece to complete the puzzle for market dominance. Following the acquisition of Figma, Adobe has a higher market share with one less rival.

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About Figma

Figma is a cloud-based design software founded in 2012 by Dylan Field and Evan Wallace. It was created as a collaborative platform for designers around the globe to make eye-catching designs. The company was last valued at $10 billion in a funding round held in 2021.

In recent years, Figma’s user base has expanded to include major corporations like Airbnb Inc. (NASDAQ:ABNB), Google (NASDAQ:GOOGL), Microsoft (NASDAQ:MSFT), Twitter, Oracle, Salesforce (NASDAQ:CRM), Herman Miller (NASDAQ:MLKN), and Kimberly-Clark Corp. The company is also renowned among and extensively used by freelancers and designers for their creative work. As more people began working remotely due to the pandemic, demand for Figma skyrocketed.

What Did Adobe Buy Figma?

In recent times, Adobe has been facing heavy competition from startups like Figma, Lightricks Ltd., and Canva Inc. These startups are highly focused on UI and allow easy operability, making them well-recognized among creative designers and professionals today VCs are pouring their money into creative tools due to the high exit valuations and potential for returns.

“Investors are looking for disruptive tech that is coupled with high levels of product-led growth. Finding a needle in a haystack is almost impossible, but this combined filter helps narrow down the search and increase the chances of finding the next Figma” said Ori Manor Zuckerman, Co-Founder & CEO of Substrata, a leading sales AI software.

With the purchase of Figma, Adobe can combine the powers of its creative tools with the UI of Figma, giving them a considerable competitive advantage. Figma was quickly growing and gaining popularity among creative professionals. The acquisition of Figma will help Adobe increase its user base while eliminating one of its direct competitors.

The Adobe-Figma Deal

On September 15, 2022, Adobe announced the purchase of Figma for $20 billion. According to Bloomberg data, the deal represents the largest takeover of a private software company in history.

Before the purchase by Adobe, Figma was backed by the likes of Index Ventures, Greylock Partners, and Kleiner Perkins. As confirmed by Adobe, Figma will generate more than $400 million in annual recurring revenue for 2022. The ARR of $400 million means that Adobe is paying around 50 times the revenue for Figma.

Post the acquisition, Figma will continue to operate as an autonomous organization as per Figma founder and CEO Dylan Field. There are also no plans to integrate Figma with Adobe’s creative services or change the existing pricing strategy of Figma.

How Will Figma Create Value For Adobe?

“We’re confident that if you look at this in the long run, it’s going to be a big value for their shareholders and our shareholders as well,” said Adobe CEO Shantanu Narayen on the acquisition.

The customer segment of Adobe has evolved a lot with designers today focusing more on easy operability and UI. Adobe stated in its investor presentation that by purchasing Figma, it has the opportunity to make content creation more effective, collaborative, and fun.

In a report published by Spike, Gen Z wants a clutter-free user experience along with companies that make it easier to collaborate and share their opinions. The main feature of Figma is exactly what is sought after by modern-day designers and Gen-Z:a user-friendly UI offering a collaborative experience.

By 2025, Figma's total addressable market (TAM) is projected to grow to $16.5 billion. According to Adobe, Figma currently has a workforce of 850 people and gross margins of about 90%. The deal is anticipated to increase Adobe's adjusted earnings per share after the third year.

Adobe can undoubtedly gain a lot from the addition of Figma to its product portfolio, including a larger market share, higher revenue, additional clients, and integration with Adobe Creative Services.

Conclusion

The acquisition of Figma makes perfect sense from a strategic standpoint because the combined synergy of the two businesses has the potential to significantly boost shareholder value in the years to come. Adobe has been the market leader since a long time, and the acquisition of Figma has solidified that position.