Adobe Acquires Figma
A Landmark SaaS Deal in a Landmark Downturn
If you’ve logged into your professional social channels in the past 24 hours, it’s hard to imagine you’ve missed the news. Adobe’s landmark acquisition of collaborative design platform Figma hit the airwaves with a force for several reasons: the eye watering price tag, the current market conditions, and the response from both the Figma community and public markets.
As a pioneer in digital creative tools, this isn’t Adobe’s first rodeo. But we thought perhaps it could be useful to unpack their acquisition history, the potential synergies between these companies and what (if anything) it means in the wild world of SaaS during these highly uncertain times.
It’s not typical of us to cover up to the minute news cycles here at Revaia Weekly. However, this story was too good to pass up. You may recall we recently wrote about M&A Strategy and not long before about how to Maintain Optimism in a Downturn. Well, this particular story fits squarely into both categories. Here’s a quick breakdown of today’s piece:
- The Adobe Story: From PDFs to the Experience Cloud
- The Rise of Figma: Community-Driven Creative Collaboration
- Sign of the Times: What Does This Tell Us About the Foreseeable Future?
The Adobe Story
Adobe is the quintessential Silicon Valley startup. Started in a garage in Mountain View? Check! Founded by two ex-employees of a major technology company? Check! Riding the wave of consumer computing? Check! In 1982, John Warnock and Charles Geschke left Xerox (yes, the printer company) to develop PostScript page description language — a computer language articulating the appearance on a printed page. Early on, Apple decided to license their product — and evidently Steve Jobs offered to buy them out for $5M, which they refused — which kickstarted their rise as a digital software company for creatives. They cornered the market and often-times built the original file formats that determined the course of digital document generation (PDF & Adobe Reader), vector-based illustration (Adobe Illustrator), image editing (Photoshop) and much more!
As they rose to prominence, their product lines expanded both organically and inorganically. And by inorganically, I mean through acquisition. Their product suite, eventually dubbed the Adobe Creative Suite, eventually morphed into the Adobe Creative Cloud following a well-executed pivot to the SaaS model (from a traditional physical software licensing model). By the mid-2010s, cloud subscription revenue overtook core product revenue which set them on course for further expansion into all things Enterprise.
The natural route to expand within the enterprise was by way of digital marketing. They already powered the creative tools, document generation products and mindshare of anyone working on these types of projects within an organization. All they had to do was build or acquire software that enabled distribution of the outputs from these teams. Hence, Customer Experience Management.
One of their earliest and most significant forays into digital marketing was the acquisition of Omniture for $1.8B in 2009. Other notable acquisitions include Magento, an open-source eCommerce platform for $1.7B and shortly after, Marketo, a marketing automation software for $4.7B, their largest purchase to date. But if you look at the chart above, the Figma acquisition announced earlier this week is absolutely record-shattering. The pattern here is interesting. An early foundation in digital design tools followed by a pivot to SaaS and expansion into marketing automation and eCommerce is followed by a substantial acquisition back to the category that Adobe originally built. But as you’ll see, Figma brings a modern twist and one that proves strategically important for Adobe’s future success.
The Rise of Figma
So how does a company with roughly a 40-year stranglehold on the digital creative suite and ever-expanding product ambitions get challenged? Enter Figma. The 10-year-old company has captured the imaginations of the modern creative and re-defined an industry that felt stagnant and out of date. But how did they become worth $20B (at least to Adobe)? A combination of strong macro tailwinds, a visionary founder and a collaborative, community-first approach to design.
Founders Dylan Field and Evan Wallace took a rather roundabout path to get Figma off the ground. Dylan dropped out of Brown University for a Thiel Fellowship and Evan started working at a drone company following graduation. They reconnected and shifted directions several times before landing on a browser-native Photoshop for UX designers. Their laser focus on this segment and broader mission to empower designers worldwide proved to be a recipe for success. Danny Rimer, an early investor in Figma at Index Ventures highlighted their prescient focus on design-thinking as a foundation for the generational shift in 21st century self-expression:
“There are a few big trends that Figma has both contributed to and benefitted from. The first is the generational significance of design-thinking. In the 19th century, the most significant marker of authority was spoken eloquence: your skills in oratory were how you found an audience. In the 20th century, as literacy rates increased, arguably that power migrated to the written word. Now, in the 21st century, as we dwell in an increasingly digital realm, the best proxy for public credibility is intuitive, responsive design. Thanks to the app-ification of everyday life, we’ve developed an extraordinary civilizational sophistication in appreciating good design — and a marked intolerance for the bad.”
- Danny Rimer, Index Ventures
The tool, in essence, brought together the best of design-thinking principles (or jam sessions), white-boarding, collaborative ideation, best-in-class design functionality and developer tooling to make it the perfect home for design teams and front-end developers. Over the course of a decade, Figma has acquired around 4 million users, $400M in annual recurring revenue and 800 employees worldwide. It’s quite clear that they’ve built something impressive, but with a $20B price tag, we need to think critically about how this plays into Adobe’s strategy and what, if anything, it says about broader SaaS valuations in the current climate.
Sign of the Times
If this acquisition had taken place just a year ago, we might be able to chalk it up to inflated valuations and frothy venture markets. But times have changed. Even if this deal was executed in mid-2021, it still would have been a jaw-dropping announcement based on price alone. Let’s look at some statistics here to put this into perspective:
- The $20B price paid by Adobe is larger than Figma’s 2025 TAM assessed to be $17bn … by the way the market did not like the news and sent the Adobe stock down by 17%!
- Figma has grown +100% in 2022 to $400m in ARR, doing 90% gross margin with impressive metrics like a 150% net dollar retention and positive operating cash flows …
- Adobe is a free cash flow generation machine with a cumulated $20bn of FCF created since 2019, so Figma is worth 3 years of Adobe’s FCF but the deal was done with a 50% cash vs. stock split
- Figma’s ARR is ridiculously small when compared with Adobe’s Creative Cloud (the designer suite) doing $11bn in ARR! Adobe is paying 13% of its market cap to add 4% of new Creative ARR!
- Figma is the most expensive SaaS multiple ever paid by a public acquirer for a large M&A at 50x ARR and probably 75x LTM Revenue — Slack x Salesforce was 26x ARR and GitHub x Microsoft was 23x.
So one of the largest ever SaaS acquisitions has taken place at the trough of one of the biggest tech market downturns in recent years. Why? I think the only argument you can really make here is that Figma has disrupted the category to such a degree that the only play here for Adobe is to acquire — not at a discount, but at a premium. In their press release, Adobe outlined the primary reasons for the merger, what you might call the synergies between the two companies:
- Reimagining the future of creativity and productivity
- Accelerating creativity on the web
- Advancing product design
- Inspiring and empowering the designer and developer community
Although Adobe once pivoted from a license model to a SaaS model, it appears the transition required to empower the next generation of web designers and developers is one step too far. Each of the above statements could effectively be the mission statement (and list of accomplishments) of Figma. And for all intents and purposes, Figma will bring this fruit to bear for Adobe. Conversely, Adobe does have the incumbent power to deliver its fair share of value to the team at Figma. Despite concerns from Figmates (community members) about adding complexity or bad UI, they have the money, experience and raw market power to incorporate and accelerate projects involving 3D, video, illustration and and more into the Figma platform.
At the end of the day, however, we have to ask ourselves: does this signal a change in the SaaS markets? Are we back on the upswing or was this an anomaly? Although Adobe has set a high bar, our best guess is that this isn’t the new standard but an exception to the bear market we find ourselves in. In the heyday of private market valuations (2021) they were valued at just $10B, half the acquisition price announced today. The combination of Adobe’s free cash flow and the implicit strategic value (and threat) of Figma has combined to make this an acquisition for the record books.
