(Reuters) -Britain’s competition regulator said on Friday that Photoshop owner Adobe’s $20 billion buyout of cloud-based designer platform Figma may be referred to a deeper investigation as it could “reduce innovation”.

The Competition and Markets Authority (CMA) said unless the parties offer acceptable undertakings to address competition concerns, mainly in screen design software where Figma is a leader, the deal would be referred to a Phase 2 investigation.

Screen design software tools enable users to design digital products and services such as applications and websites. Figma’s software also allows users to collaborate on the same workspace.

But Adobe has “no meaningful plans to compete in the product design space”, it said in a statement.

Regulators on both sides of the Atlantic are wary of Big Tech acquiring smaller rivals, especially those with access to big volumes of user data, and tend to demand remedies in return for approving such deals. CMA had said in May it was looking into the Adobe deal, announced in September last year.

“The longer this process gets dragged out the worse it is for Adobe. They have not been investing in an online collaboration product internally in anticipation of this deal, and are likely losing that business,” said D.A. Davidson & Co analyst Gil Luria.

The UK regulator said it found that the deal could lead to lesser choice for designers of digital apps, websites and other products, adding it had identified concerns in the supply of screen design software, where the companies compete.

“We’re worried this deal could stifle innovation and lead to higher costs for companies that rely on Figma and Adobe’s digital tools,” Sorcha O’Carroll, Senior Mergers Director at the CMA said.

Adobe has five working days to submit proposals to address the regulator’s concerns.

“We remain confident in the merits of the case as Figma’s product design is an adjacency to Adobe’s core creative products,” Adobe said.

The CMA most recently blocked U.S. software giant Microsoft’s acquisition of videogame maker Activision Blizzard saying it could hurt competition in the nascent cloud gaming market, sparking a furious row.

“We believe strongly that our proposed combination with Adobe will not result in any reduction of competition in our respective markets,” a Figma spokesperson said.

Adobe’s U.S.-listed shares were up about 1% on Friday.

(Reporting by Eva Mathews and Radhika Anilkumar and Chavi Mehta in Bengaluru; Editing by Janane Venkatraman, Angus MacSwan and Alexander Smith)

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