Adobe shares fell after the company agreed to pay $20 billion for the creative platform Figma

Adobe announced on Thursday that it will acquire design software company Figma for approximately $20 billion in cash and equity. Adobe’s stock dropped 17%, the most since 2010.

Figma, created in 2012, develops cloud-based design software that enables real-time collaboration among teams. It competes directly with Adobe’s XD software.

In its most recent investment round in 2021, the company was valued at $10 billion.

Figma, backed by Index Ventures, Greylock Partners, and Kleiner Perkins, is expected to produce more than $400 million in annual recurring revenue this year, according to sources familiar with the company’s financials. Adobe announced that Figma’s ARR will exceed $400 million by the end of 2022.

That means Adobe is paying around 50 times revenue at a time when cloud software sales multiples are falling sharply from record highs attained last year. Forward multiples for the top cloud companies in the BVP Nasdaq Emerging Cloud Index have declined to just over 9 times sales from around 25 in February 2021.

Adobe has stated that it will include aspects from its other products, such as drawing, photography, and video technologies, into the Figma platform. Adobe sells a variety of software services for photographers and videographers, including Photoshop, Illustrator, Premiere Pro, and others.

“Our ability to build new categories and offer cutting-edge technology through organic innovation and inorganic acquisitions has been the foundation of Adobe’s excellence,” stated Adobe CEO Shantanu Narayen.

“The marriage of Adobe and Figma is transformative, and it will accelerate our goal of shared innovation.”

Dylan Field, co-founder and CEO of Figma, will continue to lead the company after the transaction is completed. He will report to Adobe’s digital media business president, David Wadhwani.