A failed acquisition often spells doom for the target company. But despite its $20 billion takeover by Adobe not going through, there are reasons to think that Figma will be just fine.
That the online design company will get a $1 billion termination fee from Adobe will help soften the blow. But it is not the windfall some think it is; spending more than a year in regulatory limbo always takes a toll on a company and its team.
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While M&As can be long and taxing for both parties, breakup fees aren’t the norm. So, “no, startups, you’re not getting a breakup fee unless it’s a sizable enough deal where there is antitrust risk,” VC Ed Sim wrote on X. And in most cases, regulators are unlikely to get involved.
The Adobe-Figma breakup isn’t a signal of what’s to come for startup M&A
But in the Adobe-Figma deal, where both companies knew that this risk was front and center, even a $1 billion fee seems only fair compared to the uncertainty ahead.
It is precisely how Figma sailed through this period of uncertainty that suggests it will come out of this saga relatively unscathed — and even be potentially ready to IPO in 2025. Let’s explore.
Keep calm and carry on
Pending M&As often cause paralysis, but not always. In his blog post announcing the deal’s cancellation, Figma co-founder and CEO Dylan Field said he felt that the company “only continued to accelerate [its] pace over the past 15 months.”
As my colleague Ron Miller noted, Figma “hired 500 people since September 2022. What’s more, it has developed new capabilities, including tools aimed at developers and a generative AI layer on top of its popular FigJam whiteboard tool.”
Adobe has a big hole to fill after the $20B Figma deal falls through
Features aside, the company also executed new strategic plans, Field recalled: Opening new hubs in the U.K. and Asia, hosting its Config conference in San Francisco, and even making an acquisition of its own: AI startup Diagram.
That’s all well and good. But despite the current appetite for all things AI, these updates alone wouldn’t necessarily make the company nearly as valuable in the eyes of investors than at the hyped time of mid-2021 Series E round, when it was valued at around $10 billion. So why does CB Insights estimate that Figma is still worth between $8.3 billion and $9 billion? The answer lies in three letters: ARR.
The days of valuing companies at 50 times their annual recurring revenue, as Adobe was prepared to, are likely behind us, at least for now. But with sources telling The Information that the company expects to finish 2023 with more than $600 million in ARR, things aren’t looking too bleak for Figma.
Doing the math
CB Insights took two benchmarks for its estimates: competitor Canva, which was valued at “14.94x price/revenue multiple” in a recent secondary market transaction, and Adobe, which “trades at a price/sales multiple of 13.88x.”
That estimated valuation would still be lower than its previous one and significantly lower than the $20 billion price tag that Adobe was willing to pay.
However, we always knew that the two companies together would be worth more than the sum of their parts; that’s also why regulators were concerned. Now that the transaction is no longer happening, it is not too discouraging to see that Figma is still worth nearly as much as it was in 2021, especially if reports that its ARR grew by 40% this year are confirmed.
Net dollar retention (NDR) is another metric we’d love to get an update on; it speaks of a company’s ability to grow efficiently, and Figma has been pretty outstanding at it. When Adobe announced its intent to acquire Figma in September 2022, it said that the company’s NDR was “greater than 150 percent” — a number that many SaaS companies would envy.
Of course, not every company has a product as popular and sticky as Figma. But there are still lessons to be learned from what helped it limit the damage from its failed M&A. Namely, how it kept on operating and growing as best as it could during that period.
M&As can be grueling for teams, and failed ones, even more so. Hopefully, employees at Adobe will find some comfort in knowing that their employer now once again has a big pile of cash it could deploy, while Figma didn’t take too much of a hit. If an acquisition is no longer in the cards, an IPO could very well be — maybe as early as 2025, so we’ll be watching.
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