Apr 20, 2005

Photoshop and Flash: Potent Combo

The only surprise about the Apr.18 announcement that Silicon Valley software maker Adobe Systems (NASDAQ: ADBE) (ADBE) plans to buy Macromedia (MACR) for $3.4 billion in stock was how long it took to happen.

Source: Business Week Europe on Yahoo

Rumors of an Adobe-Macromedia (NASDAQ: MACR) deal have been circulating for the better part of this decade because analysts always thought the two graphic-design software specialists could make a powerful combination to take on the likes of Microsoft (NASDAQ: MSFT) (MSFT) and just about anyone else who ventured onto their creative turf. “In 10 years of software research this is probably the easiest deal I’ve ever seen in terms of explaining why it’s going on,” says Gene Munster, an analyst at Piper Jaffray.

STICKER SHOCK. The two businesses have the same goal: Break out of their successful little niches, sell publishing software to bigger companies, and duplicate their enviable success on the desktop computer in the growing market for so-called smart phones and other wireless devices.

More than half of Adobe’s $1.7 billion in annual revenue come from selling its popular Photoshop and Illustrator products to creative types, most notably photographers and graphics designers. Macromedia makes 80% of its $370 million in annual revenue selling Web-design software Dreamweaver and Flash to the same clientele. In fact, nearly every PC sold today ships with the Flash software installed. Yet the two companies, both growing more than 20% per year, are selling to the same customers with barely any overlap in products — a rarity in techdom.

If Adobe CEO Bruce Chizen manages the merging of the two companies well, analysts say the deal has little not to like, except its cost. Investors were initially put off by it — Adobe shares lost 9.7%, to close at $54.77, on Apr. 18, while Macromedia shares gained 9.8%, to close at $36.72.

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