Adobe's proposed $20 billion acquisition of digital design rival Figma is facing a significant obstacle as the European Union (EU) launched a long antitrust investigation into the deal.
Concerns about possible declines in innovation and price increases have prompted EU regulators to launch a formal investigation, which could disrupt the deal.
Typically, large acquisitions undergo a "phase 1" investigation, which takes a few months to complete. However, sources familiar with the matter indicate that the EU is planning a more extensive "phase 2" investigation, which could last significantly longer and pose a greater risk to the deal's completion.
This EU investigation adds to the regulatory scrutiny facing Adobe's acquisition. The UK has already initiated a probe, and the US Department of Justice is reportedly preparing a lawsuit to block the transaction.
Figma, alongside Australia-based Canva, is a leading provider of cloud-based design tools known for their superior performance compared to Adobe's software, including the widely used Photoshop. The EU previously highlighted concerns that the deal could significantly impact competition in the market for interactive product design and whiteboarding software.
According to sources, EU regulators have grown increasingly worried that the acquisition could be a "killer acquisition," where a larger company acquires a smaller competitor to eliminate competition. This opinion reflects the concerns surrounding Adobe's attempt to acquire a credible rival in the industry.
Adobe's offer to acquire Figma values the company at 50 times its annual recurring revenue, representing a significant increase compared to previous valuations. The company argues that the two businesses operate in distinct markets, with limited user overlap between Photoshop and Figma.
While Adobe has not yet presented the deal for scrutiny by EU regulators, the company could potentially avoid an in-depth investigation if it provides compelling evidence to address the EU's concerns in the coming months.
The outcome of the EU investigation and regulatory actions in the UK and the US will determine the future of the acquisition.