The U.S. Department of Justice plans to challenge Adobe Inc.’s proposed acquisition of Figma Inc. on antitrust grounds, according to a new report.

Bloomberg on Thursday cited sources as saying that the Justice Department could sue to block the $20 billion deal as early as March. However, the sources noted that the lawsuit could also be filed later. 

Shares of Adobe dropped more than 7% on the news today, which suggests that investors see the Figma acquisition as an important component of its long-term growth strategy. Shareholders were more hesitant about the deal when it was first announced last September. The day Adobe made its plans to buy Figma public, its shares tumbled almost 17%.

The proposed $20 billion acquisition would buy Adobe one of the industry’s most popular tools for designing user interfaces. In mid-2021, Figma’s interface design platform of the same name had more than 4 million users. The platform’s customers include designers at major tech firms such as Stripe Inc., Dropbox Inc. and Google LLC.

Figma owes its popularity in significant part to its extensive prototyping features. When developing an interface for a website or app, designers often create many different iterations of visual assets before settling on the final version. Figma reduces the amount of manual work involved in the prototyping process.

Creating a prototype interface usually requires not only visual assets but also a significant amount of code. Figma’s tool reduces the need for coding. It allows designers to perform tasks such as animating a button when it’s clicked through a drag-and-drop interface, which is significantly faster than manual programming.

Tweaking the design of interface components during the prototyping phase involves many secondary tasks. For example, when a designer increases the font size of a banner ad, the ad has to be resized to accommodate the larger text. Figma’s tool automates many such tasks to help design teams create interface prototypes more quickly.

Figma was growing rapidly when Adobe announced the proposed acquisition last September. At the time, Adobe disclosed that Figma was on track to double its annual recurring revenue in 2022. The startup’s sales momentum is fueled not only by new user signups but also growing demand from its existing customer base, which had a 150% net dollar retention rate when the deal was announced.

Buying Figma would strengthen Adobe’s already strong position in the creative software market. The company’s Creative business, which includes products such as Photoshop, generated $10.46 billion in revenue last year.

Adobe’s plans to buy Figma have drawn scrutiny not only from the Justice Department but also from antitrust regulators abroad. Adobe divulged last December that the U.K.’s antitrust regulator, the Competition and Markets Authority, was reviewing the transaction. Earlier this month, the European Commission stated that it will also evaluate the potential antitrust implications of the deal.

Adobe told Bloomberg in a statement that it expects to complete the acquisition of Figma this year. It’s holding “constructive and cooperative discussions with regulators in the U.S., U.K. and EU among others,” the company added.

Image: Adobe