Adobe Inc. has called off a planned $20 billion acquisition of the collaboration software developer Figma Inc. after the European regulators set sights on the deal and said the merger could reduce competition in local markets.

Adobe and Figma announced this morning that the companies mutually agreed to terminate the cash-and-stock agreement, originally announced on Sept. 15, 2022, as there is “no clear path to receive necessary regulatory approval.”

The deal between Adobe and Figma drew regulatory scrutiny from multiple regulatory organizations including the U.K. antitrust body the Competition Markets Authority, or CMA, which released findings late last month stating that the deal would likely harm innovation for software of local digital designers. Similarly, the European Commission opened a full-scale investigation into the merger in August, saying that it saw similar concerns.

“Adobe and Figma strongly disagree with the recent regulatory findings, but we believe it is in our respective best interests to move forward independently,” Adobe Chief Executive Shantanu Narayen wrote in a statement today. “While Adobe and Figma shared a vision to jointly redefine the future of creativity and productivity, we continue to be well-positioned to capitalize on our massive market opportunity and mission to change the world through personalized digital experiences.”

Founded in 2012, Figma developed a cloud-based platform for companies that allows for the rapid creation of user interfaces for websites and applications. The startup’s platform allows multiple designers to create an interface at the same time. The platform provides a visual interface for users to design and complete their collaboration and provide feedback on the process and also provides underlying code that will help turn it into a working website.

After the 2022 merger announcement, investors questioned the massive acquisition and Adobe’s shares fell almost 17% on the news. However, at the time the company and its executives focused on how it would become a natural evolution of the platform, as Adobe’s products are commonly used in web development.

“Adobe’s greatness has been rooted in our ability to create new categories and deliver cutting-edge technologies through organic innovation and inorganic acquisitions,” Narayen said at the time. “The combination of Adobe and Figma is transformational and will accelerate our vision for collaborative creativity.”

According to the SEC regulatory filing, Adobe will pay Figma a $1 billion breakup fee for terminating the merger agreement.

“Going through this process with Shantanu, David and the Adobe team has only reinforced my belief in the merits of this deal, but it’s become increasingly clear over the past few months that regulators don’t see things the same way,” said Figma co-founder and CEO Dylan Field.

European regulators have been increasing their attention towards tech industry acquisitions and mergers. The CMA initially rejected Microsoft Corp.’s since-completed acquisition of the video game company Activision Blizzard for $68.7 billion after stating that it could harm competition in local markets. Meta Platforms Inc. was forced to sell Giphy Inc., an animated GIF search and sharing platform, in 2022 after the CMA determined that its 2020 acquisition for $315 million would increase its market share too significantly. The regulator has also begun to review the partnership between Microsoft and ChatGPT developer OpenAI.

Despite the failure of the merger, Adobe and Figma still intend to move forward with continued business in the future, according to the companies.

“Through this process, it has been a pleasure to get to know Figma’s employees and their community,” David Wadhwani, president of Adobe’s Digital Media Business, wrote in a blog post. “We will continue to look for ways to partner with Figma to delight our joint customers.”

Photo: Adobe MAX/Flickr