The Millennial-Panic M&A Boom Is Upon Us

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On Monday, the same day that Time Warner officially spun off its moribund publishing division, we learned that the 92-year-old media conglomerate is in talks to buy a huge stake in Vice Media, valuing the upstart media brand at roughly $2.2 billion. The symbolism of the Vice news coming on the same day as the Time Inc. spinoff was hammer-over-the-head obvious — a fabled media company ditching its old, dusty news magazines for the youthful appeal of an amorphous, web-savvy omnimedia platform whose tattooed founder once called the Time Warner–owned CNN a "fucking disaster."

Time Warner's Vice investment might seem like a classic media-consolidation play. But to me, it looks more like something out of the tech start-up world.

The way media commentators are talking about the Vice deal reminds me of how tech commentators talked about Facebook's purchase of Oculus and WhatsApp, Google's purchase of Twitch, and Apple's purchase of Beats. All of these deals fit a similar narrative: An aging mega-company realizes it's losing its grip on the next generation and, sensing it can't solve the problem on its own, decides to go shopping for start-ups that are doing a better job of appealing to young consumers. It's fear of mortality, disguised as M&A strategy.

(In his Q&A with BuzzFeed founder Jonah Peretti, Felix Salmon describes this phenomenon as it relates to the digital media industry: "Vice and BuzzFeed and Vox — it seems to me that you’re monetizing the paranoia of brands and of marketers who are like, 'Oh shit, young people don’t watch TV they are on their phones all the time they are on the web the whole time — we don’t know how to reach them.'")

The old-school reason for conducting M&A deals is that one company thinks it can achieve financial synergies by acquiring or merging with a similar company. (In this spring's Big Banana merger, for example, Chiquita thought that merging with Fyffes, another top banana company, would make the combined entity more competitive than either company would be on its own.) Companies also acquire other companies strategically (Company A views Company B as a short-term threat, and buys it to eliminate the possibility of being beaten), or for more boring reasons like cross-border tax arbitrage.

But this latest round of tech acquisitions isn't predicated on any of these strategies. Facebook bought Oculus for $2 billion with no clear plan for integrating the virtual-reality start-up into its existing social network. Apple's Beats deal and Google's reportedly in-the-works Twitch acquisition have a similar aimlessness to them. In all of these cases, what the acquiring company is actually buying isn't a product, a threat, or a team. It's access to a demographic, and an insurance policy on the future.

M&A deals of any kind make a lot of sense right now, given the amount of cash sitting idle on corporate balance sheets and the availability of cheap financing. But the type of deals being done now represent a change from the norm. By putting a premium on long-term demographics over short-term synergies, acquirers are behaving like glorified venture-capital firms, spreading their risk around by lots of different types of start-ups, letting them stay autonomous, and hoping that a few of them will get huge.

It's a very different model than that of a few years ago, when tech and media companies were still trying to grow organically without needing to call in pinch-hitters. It points to how clueless most corporate executives are about the desires and habits of young people. And it 's a crystal-clear signal to any start-up hoping for an eventual sale: If you've succeeded at all in cracking the millennial code, your value goes way, way up.

Putting a premium on youth isn't a bad thing. After all, young people are valuable. Many are still in their habit-forming stages, where a lifetime's worth of consumer patterns is set. And tech M&A strategy has always been governed by a certain exotification of youth — witness the many old-line companies that tried to buy Facebook when it was still just a social network for college kids.

But this youth-above-all strategy could also backfire. After all, young people change their tastes more frequently than adults, and they aren't a monolith. (What appeals to 16-year-olds often doesn't do it for 18-year-olds, and vice versa.) The 20- and 30-somethings of the tech industry haven't shown themselves to be particularly adept at parsing the interests of teens — just witness how Yik Yak, an aggressively ugly anonymous sharing app that flew under Silicon Valley's radar for months, has taken over high schools and colleges. And, as Farhad Manjoo has written, kids themselves aren't particularly good bellwethers of mass adoption or tech profitability.

In the case of Vice, Time Warner executives need to believe that Shane Smith not only knows what millennials will want from a news network, but how they'll want to get their news in the future — it's a bet on form as well as content. And they'll need to give Vice near-complete autonomy no matter how big Time Warner's stake gets; after all, what's the point of acquiring an edgy young audience only to force your old-school sensibilities on them?

It's a big gamble, this desperate desire to acquire and monetize what Kids These Days are doing. But it's not tough to imagine Silicon Valley's age anxiety spreading to other sectors. After all, as more young start-ups get acquired, fewer will grow into huge independent businesses, and the average corporate age will rise, which could compound the problem of too little in-house innovation. For the foreseeable future, buying a hip, young start-up will probably remain corporate America's favorite way to stave off time's cruel march, or at least have fun trying.