What an amazing world where a regulator’s dis-approval for one company to buy another will activate a clause which will make the buyer pay the seller $1 billion as a termination fee. Yes, Adobe will have to fork out $1 billion and wire the funds to Figma because the UK and EU regulators would not allow the Adobe-Figma deal to go ahead:
“Adobe (ADBE.O) on Monday shelved its $20 billion deal for cloud-based designer platform Figma, pointing to “no clear path” for antitrust approvals in Europe and the UK for what would have been among the biggest buyouts of a software startup…Adobe will pay a termination fee of $1 billion to San Francisco-based Figma, whose web-based collaborative platform for designs and brainstorming is used by Uber, Coinbase, Zoom Video Communications and many other firms.”
That last part is the focus of this post: the power of contracts and making sure people do not waste people’s time. You see, Figma has done the agreement in such a way that if Adobe is unable to get the regulators to approve the deal, it will cost Adobe $1 billion. With that, the “smaller” company will not be distracted without compensation if the deal fails. For Adobe, it must have modeled that it could overcome all hurdles before agreeing to such. Of course, deals fail, and they do happen all the time. In America, there is always a termination fee within a clearly defined timeline.
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In 2023, I know two major Nigerian startups which did not survive, after publicly announced deals did not materialize. The reputational hit which comes when the buyer pulls out could be damaging especially when that pull-out is not because of any regulatory scrutiny. But left and right, it comes down to the positioning of the seller. If you are on a fire yard sale, no one will promise you anything. But when your positioning is strong, you can put a clause to be paid $1 million if the company decides not to move ahead, provided during due diligence, no demons were discovered.
In Nigeria and Africa, we should learn from these clauses and see how we make sure people do not come on the pretense to acquire companies, just to steal trade secrets, and then walk away free. I have seen such in the startup world, and I continue to tell founders to be careful before they open their books. Yes, define all boundaries and add a small penalty such that if after all the terms are met, and the buyer decides not to execute, the company will be mandated to compensate.
Make it self-evident so that you do not need a court to interpret the terms because it would be lively-activated: if we meet conditions A, B, andC, and within 30 days, we have not received Agreement #3 signed, you would be required to pay $1m as termination fee, and that fee should be wired to reach our bank account (….) by Jan 4, 2024. Yes, something like that; ask your lawyers! I can always provide the bank account…lol
Figma and Adobe have abandoned their proposed merger. The companies “no longer see a path toward regulatory approval of our proposed acquisition,” Figma’s co-founder and CEO Dylan Field posted on Monday. The blockbuster $20 billion deal faced significant regulatory hurdles in Europe and the United Kingdom in particular, where the Competition and Markets Authority (CMA) provisionally determined the deal “would harm the product design software market” if it were to move forward. The deal’s collapse means that Adobe must now fork out $1 billion to Figma for a reverse termination fee (RTF), The Verge reports.
An RTF is a fee payable by the buyer to the seller in the event of non-consummation, often due to failure to receive antitrust clearance within a certain time frame or failure to secure financing for the transaction.
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Fifteen months into the regulatory review process, Figma and Adobe no longer see a path toward regulatory approval of our proposed acquisition.
Figma and Adobe have reached a joint decision to end our pending acquisition. It’s not the outcome we had hoped for, but despite thousands of hours spent with regulators around the world detailing differences between our businesses, our products, and the markets we serve, we no longer see a path toward regulatory approval of the deal.
We entered into this agreement 15 months ago with the goal of accelerating what both Adobe and Figma could do for our respective communities. While we leave that future behind and continue on as an independent company, we are excited to find ways to partner for our users.
Amid the uncertainty of a pending acquisition, I am deeply proud of how the Figma team delivered for our community and feel we have only continued to accelerate our pace over the past 15 months. Our team built and shipped new products to make it easier to ideate, design and build software, including our first native AI features, Dev Mode, Variables, and Advanced Prototyping. We also opened new hubs in the UK and Asia, hosted an epic Config IRL in San Francisco, acquired AI startup Diagram, and added more than 500 new Figmates.
Figma’s founding vision was to “eliminate the gap between imagination and reality.” The shift from a physical economy to a digital economy and huge advances in AI have combined to make this aspiration feel even more urgent and within reach today than it did 11 years ago.
This will be our focus moving forward. We want to make it easy for anyone to design and build digital products on a single multiplayer canvas—from start to finish, idea to production. I’m so excited for what the future holds and beyond grateful to our community for supporting us. Figma’s best, most innovative days are still ahead. See you all in 2024!
What an amazing world where a regulator's dis-approval for one company to buy another will activate a clause which will make the buyer pay the seller $1 billion as a termination fee. Yes, Adobe will have to fork out $1 billion and wire the funds to Figma because the UK and EU… pic.twitter.com/iONwJVr4H7
— Ndubuisi Ekekwe (@ndekekwe) December 18, 2023
Comment on Feed
Comment 1: A new twist. What happens in seller-induced headwinds for-profit situations?
My Response: Most times, for a termination fee to be included, it cannot be the seller which initiates. Typically, you are sleeping and the buyer wakes you up, and you want to return back to sleep, and he tells you to stay awake with a promise of money if the deal cannot get through. You awake and distracted, you’re sure Head or Tail, you get something!
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Wow, this is a big one for both Parties. Adobe will indeed learn from this.