Adobe’s proposed $20 billion acquisition of blossoming design startup Figma hit a major roadblock this week as EU antitrust regulators are reportedly preparing to file formal charges against the software giant over competition concerns. The charges suggest that regulators believe that the deal would improperly harm Figma’s rivals in the digital design space.

According to sources familiar with the matter, the European Commission is ready to issue a Statement of Objections laying out allegations that the merger violates the EU’s competition law. The charges could arrive as early as this week according to the sources cited by the Financial Times.

Adobe would then have the opportunity to offer remedies addressing the EU’s objections. However, the commission’s decision to open a formal case underscores the depth of the regulatory threat facing the transaction in Europe.

Regulators Are Worried About Stifled Competition

When Adobe (ADBE) announced its plan last September to acquire the San Francisco-based Figma, it sparked immediate scrutiny. Figma has skyrocketed in popularity thanks to its cloud-based design platform that enables seamless collaboration between designers, heads of product, and other staff members involved in the design process of businesses.

Critics argued that the deal looked like a classic example of a giant tech firm scooping up an emerging competitor before it becomes a serious threat. By absorbing Figma into its creative software suite, Adobe could retain an edge in the market while eliminating a rival.

EU regulators now appear to share these concerns. In June, the European Commission declared that it would fully investigate the merger’s impact on the market’s competitive structure despite Adobe and Figma having limited reach in Europe. Officials worried that the deal would “significantly affect competition in the market for interactive product design and whiteboarding software.”

The pending charges suggest that the EU believes that the completion of the deal will lead to decreased innovation and would ultimately harm consumers if the acquisition goes through as proposed. Regulators seem convinced that the merger would improperly consolidate market power on Adobe.

The Latest Setback After Similar Actions in the UK and US

Antitrust actions in Europe would represent just the latest obstacle facing the Adobe-Figma tie-up. In the UK, regulators extended their own probe into next year over concerns that the deal could substantially lessen competition.

Meanwhile, in the US, the Department of Justice filed a lawsuit to halt the acquisition. Across jurisdictions, authorities are wary about a dominant creative software company absorbing a rising yet much smaller competitor.

For its part, Adobe has expressed confidence that it can satisfy regulators and close the deal later this year as planned. But opposition appears to be emerging from all sides as officials take a tough stance against potential anti-competitive tech mergers.

The fate of the acquisition is being closely watched by the broader tech sector. If regulators ultimately block the deal, it could chill M&A activity as companies may worry about squandering time and money on rejected mergers.

On the other hand, allowing the Figma purchase to proceed could spur other software giants to scoop up emerging rivals before they get too big or expand their market share. It could also put tremendous pressure on the last remnants of Adobe’s competition, only entrenching the giant even more.

From Adobe’s perspective, acquiring Figma’s hot productivity tools to integrate into its creative suite makes sound business sense. Nonetheless, the company may be forced to make significant divestitures or guarantees to get the deal past antitrust hurdles in key jurisdictions like the EU and the US.

Can Adobe Secure a Similar Outcome than the Meta-Kustomer Acquisition?

The proposed merger echoes last year’s attempted acquisition of customer relationship management company Kustomer by Facebook’s parent company Meta Platforms (META). After facing opposition from EU officials, Meta and Kustomer were eventually cleared to complete the deal within the economic bloc.

Like the Adobe-Figma deal, critics pointed to the Meta-Kustomer acquisition as a ploy to neutralize a competitor under the guise of an acquisition. Meta was ultimately able to overcome the regulatory blockade in Europe. Adobe now faces the same uphill battle to close its megadeal and it is unclear if it will manage to obtain a positive outcome.

Should the sale fail, it would demonstrate regulators’ willingness to take an increasingly tough line against purchases of hot startups by entrenched and deep-pocketed tech giants. Companies may need to reconsider using M&A as a growth strategy if antitrust opposition continues solidifying across the globe.

Adobe could find itself forced to leave Figma independent and find other ways to match the company’s innovations. The tech world will be watching closely whether Adobe can chart its path to approval as Meta did in January last year.