Adobe has agreed to buy design software company Figma for about $20 billion, shaking up an industry that has been one of the hardest hit in the tech selloff that began late last year.
San Francisco-based Figma, which was founded in 2012, enables software developers and designers to collaborate remotely and design everything from presentation slides to user interfaces in mobile apps.
Along with Australian start-up Canva, it’s 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 posing a potential threat to traditional leader Adobe in design software.
The purchase price, which will be paid half in cash and half in stock, is double what Figma was valued at in its last round of private financing 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 exceed $400 million by 2022.
Acquisitions at multiples of 50 times revenue and above were common in the software boom that peaked during the pandemic, but multiples for most companies have fallen below 20 this year and acquisitions have returned scarce
The big premium contributed to a sharp drop in Adobe’s stock price early Thursday, which was triggered by a cautious earnings forecast from the company. The negative projection wiped 16 percent, or $28 billion, off its value.
“People in this environment ask, ‘why big deals?’ There are questions,” said Shantanu Narayen, chief executive of Adobe. But he claimed that Figma would be a “transformational” deal for Abode and that its browser-based approach and collaboration tools would increase the company’s global market.
Danny Rimer, a partner at Index Ventures, which says it is Figma’s largest investor, said the company was on track for an initial public offering before talks with Adobe began.
Dylan Field, Figma’s chief executive, got the idea for the company after dropping out of Brown University with co-founder Evan Wallace at age 19, after accepting a $100,000 grant from libertarian financier Peter Thiel. Thiel began offering 20 “fellowships” a year more than a decade ago after deciding that top scientists and entrepreneurs were wasting their time getting a traditional college education.
The idea that sophisticated design tools could be delivered in a web browser was widely rejected when Figma started, Field told the Financial Times, adding: “Literally, nobody 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 to its platform, Adobe said. 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 Thursday, Adobe reported net income of $1.1 billion on revenue of $4.4 billion, 13% year-over-year growth, or 15% in constant currency.