Adobe shares have got smashed overnight after the business agreed to buy software design start-up Figma for close to $30 billion.

At 8.00am shares in Adobe had fallen close to 17% as investors became concerned over Adobe’s move to expand its suite of creative tools for professionals.

Dylan Field and Evan Wallace started building design start-up Figma to challenge Adobe’s Photoshop now they are billionaires after Adobe agreed to a US$20 billion-dollar deal which is half cash and half Adobe stock.

Figma, which allows customers to collaborate on software as they build it, saw demand jump during the pandemic while more people worked remotely.

The company expanded its customer base in recent years from software designers at big companies too also include individuals building lightweight games, maps, and presentations. It has also attracted a loyal student following.

Companies that use Figma’s software include the likes of Google and Amazon.

The combination benefits “literally anybody who is a knowledge worker,” said Adobe Chief Executive Officer Shantanu Narayen, in an interview.

This year Adobe stock has tumbled losing 45% of its value since the start of the year.

Investors have become increasingly sceptical about the dominance of Adobe’s line of software for design professionals, which makes up about 60% of its revenue with Companies such as Canva stripping share away in the entry level market for Adobe’s Creative Suite.
In response Adobe has targeted more accessible web-based offerings such as Adobe Express to sell its creative software to consumers, small businesses, and social media influencers.

But the initiative ran into friction from upstarts including Figma, Lightricks and Australian Company Canva.

12 months ago, Figma was valued at $10 billion.

“Figma was at the scale that it was a serious standalone company — the path was to go public,” said Figma board member Mamoon Hamid, a partner at Kleiner Perkins. “The right company made us an offer we couldn’t refuse.”

The deal’s “very high” valuation is likely weighing on Adobe’s stock, said Bloomberg Intelligence’s Anurag Rana. He added that Figma may add less than 2% to Adobe’s sales growth rate and will likely decrease margins.

Analysts questioned Adobe executives on their valuation of Figma during the company’s earnings call this morning.

But Adobe defended its business strategy. “I understand that there’ll be some sentiment associated with the price, and the balls in our court to go demonstrate,” Narayen said on the call.

The shares plunged 17% to $309.13 at the close in New York, making it the worst performer on the S&P 500.

The transaction is expected to close in 2023, pending regulatory and other approvals, Adobe said.