The U.K.’s antitrust regulator has determined that Adobe Inc.’s planned acquisition of Figma Inc. could reduce competition in the local market for graphic design software.

The Competition and Markets Authority, or CMA, released its findings today. Adobe has five business days to address the regulator’s concerns. If the concerns go unaddressed, the deal will be referred to an in-depth antitrust probe known as a Phase 2 investigation.

Phase 2 investigations can potentially lead to the CMA blocking an acquisition from proceeding. Alternatively, the regulator may allow a deal to complete only if the acquirer agrees to make certain antitrust commitments.

Adobe originally announced its plans to buy Figma for $20 billion last September. Founded in 2012, Figma provides a cloud service that designers use to create interfaces for applications and websites. The service makes it possible to create a prototype of a new interface without writing any code, which speeds up the initial stages of design projects.

Adobe detailed at the time of the deal’s announcement that Figma was on track to close 2022 with more than $400 million in annual revenue. The startup’s installed base includes millions of users.

According to a document released by the CMA today, officials believe the deal raises antitrust concerns in two main areas.

The first area is what the regulator defines as the screen design software segment. The segment includes tools such as Figma that focus on helping users design websites, apps and digital marketing materials. This product category doesn’t include applications such as Photoshop, which can be used for the same tasks but also lend themselves to other types of creative projects. 

Adobe’s entry into the screen design software segment is an application called Adobe XD. According to the CMA, the company’s product development efforts in this market were partly motivated by the competition it faces from Figma. The CMA is concerned the acquisition would remove that competition.

Without the market pressure from Figma, Adobe might have less incentive to actively improve its offerings. The CMA stated that Adobe’s internal documents “regularly reference competing with Figma and compare planned features to those offered by Figma.” Furthermore, the regulator detailed that the software giant had scrapped an effort to develop a Figma-like screen design tool shortly before the deal was announced.

The second focus of the CMA’s antitrust concerns is the creative design software market. This market includes tools such as Photoshop that can be used for the interface development tasks Figma focuses on, but lend themselves to other types of design projects as well.

Figma currently offers a relatively limited number of creative features as part of its platform. However, the CMA found that the startup had “regularly explored the possibility of expanding its creative design offering either through development or acquisition.” Had Figma implemented those plans, it could have potentially created more competition for Adobe’s portfolio of creative applications. 

“The CMA found that Adobe considered Figma and its possible expansion to be a significant potential threat to its creative design software business,” the regulator stated. “As a result, the CMA found that the Merger would remove a significant competitive threat to Adobe from the market and result in a substantial lessening of competition.”

The CMA originally opened its inquiry of the deal in March. A month earlier, Bloomberg reported that the U.S. Department of Justice was preparing a lawsuit to block Adobe from buying Figma. Separately, antitrust officials in the European Union are reportedly planning to launch a formal investigation into the deal. 

Image: Adobe