When Adobe (ADBE) announced the $20 billion acquisition of Figma last week, investors were wildly disappointed. That disappointment cost Adobe $35 billion in market cap including the $1.6 billion that Adobe shed today. We mostly focus on the acquisition of public companies and merger arbitrage spreads on those deals, but this deal was fascinating on multiple fronts. Most investors were wondering what exactly Figma was and why Adobe would pay so much for a company that is expected to generate $400 million in 2022 revenue, putting the price tag at 50 times sales. Didn’t we just go through the popping of a software bubble, especially in SaaS stocks?
With the exception of security software companies, most SaaS companies are now being valued at somewhere between four to six times forward sales. Despite the big drop in Adobe’s stock in recent days, it still trades at a small premium of eight times forward sales. The stock, which had dropped 34% year-to-date before the deal was announced is now down nearly 48% YTD. The deal for Figma will be half in cash and half in stock. Given the drop in Adobe’s stock since announcement, it is likely that the total value of the deal will eventually end up being lower than the $20 billion headline number.