Adobe Inc. decided to buy the cloud-based designer platform Figma on Thursday for $20 billion, raising investor concerns over the high price tag that caused the market value of the company that created Photoshop to decline by more than $30 billion.
The cash-and-stock transaction, which is the largest acquisition of a privately held software startup, will give Adobe ownership of a business whose web-based collaboration platform for ideas and design is well-liked by companies like Zoom Video Communications, Airbnb Inc., and Coinbase.
Shantanu Narayen, the CEO of Adobe, claims that Figma’s business represents “the future of work” and that there are “tremendous opportunities” to integrate it with his company and its products like file reader Pdf and online board Figjam.
For Figma’s venture capital backers, including Index Ventures, Greylock Partners, and Kleiner Perkins, the $20 billion exit represented a significant victory. Figma can provide its extensive knowledge in constructing in the browser in return “Josh Coyne, a partner at Kleiner Perkins, who made the initial investment in Figma in 2018, stated that the investment is anticipated to provide a return of over 100 times once the deal is closed.
Less enthused investors reduced the value of Adobe’s stock by 17% on Thursday. Many of them claimed to understand the strategy’s justification, but they claimed Adobe spent too much for a business that had been valued at roughly $10 billion in a private funding round just over a year before.
Since Figma’s annual recurring revenue (ARR) was $400 million, a negligible portion of Adobe’s $14 billion, according to David Wagner, portfolio manager, and equity analyst at Aptus Capital Advisors, which holds a 1.5% stake in Adobe, it was unreasonable for Adobe to pay the equivalent of 11% of its market value for 2.8% more ARR.