The Economics of Pocket Watching

rich off koch

Last week, a report came out that Koch Inc’s private equity arm is in talks to buy Forbes

Koch Equity Development (KED) has invested in a few media outlets over the years:

• 2017: Meredith Corp acquires Time Inc for $2.8B, all cash. KED provides $650M in financing

• 2019: KED invests $550M in Getty Images.

KED typically uses up to 10% of Koch Inc’s annual profits to make acquisitions and invest in long term growth investments. With $125B+ in revenue and estimated 5-10% profit margins, it’s safe to assume KED has $400M-1B of annual inflows from Koch profits.

The firm aims for poorly managed companies that have been overlooked by other buyers. For companies outside of Koch’s manufacturing and tech focus, it will bring in a strategic partner (ie Meredith Corp in the Time acquisition).

For the Forbes deal, that strategic partner is Divyank Turakhia. Turakhia is an Indian born entrepreneur who sold his AdTech company, Media.net, for $900M.

Koch and Turakhia are targeting a $550-600M price range for Forbes.

family matters

The story starts with Fred Koch. A son of Dutch immigrants, he was born in Texas and attended Rice then MIT, graduating in 1922 with a chemical engineering degree. After working at an oil company in Texas and England, he started his own company three years after graduating: the Winkler-Koch company.

At this time in New York City, a Scottish immigrant by the name of Bertie Charles Forbes founded a magazine known as Forbes: Devoted to Doers and Doings. By 1925, the publication was in its eighth year of operations. B.C. Forbes strongly believed that business media at the time focused too much on balance sheets and income statements, rather than the influential people and ideas that powered companies.

Forbes blossomed during the Roaring Twenties

By the 1960s, Fred Koch had managed to pile up millions for his family by creating the Wood River Oil and Refining Company. His previous company, Winkler-Koch, had also seen success, building hundreds of refineries across the globe. He had four sons, and three of them attended MIT, where they joined the Beta Theta Pi fraternity and played basketball.

• David Koch served as the basketball team captain his senior year, averaging 21 points and 12 rebounds.

• He held the single game points record (41) until 2009.

By the 1980s, Forbes was at the peak of its game. After surviving a near death experience in the Great Depression, it had remained just relevant enough to take advantage of a new era in American wealth. This is where Forbes as we know it was born

The company launched a special annual issue that listed the 400 Richest Americans. The number 400 was inspired by Caroline Astor, a prominent New York socialite, who hosted a yearly “400 Ball” back in 1892.

The 400 issue was a success like no other

Meanwhile, the Koch dynasty was experiencing some internal conflict. The four brothers were fighting for control of their late father’s company. Will and Fred, the older brothers, wanted dividends while Charles and David wanted to re-invest into the company. Charles and David ended up buying out Will and Fred for a combined $1.2B. This was 1983

Today, Forbes estimates Koch Industries to have annual revenues of more than $125B, the second largest private company in the country

• The Koch family is worth $116B according to Forbes

• Charles Koch is worth $67B according to Forbes

• Charles’ son, Chase, runs Koch Diversified Technologies, their VC investing arm

a network of doers

The Forbes family no longer owns the publication, after selling a 95% stake to Integrated Whale Media (Hong Kong based investment firm) in 2014.

IWM has been a restless steward of the Forbes asset, with two unsuccessful attempts at selling in 2021 and 2023.

• Forbes was last valued at $800M during the failed 2023 acquisition

Forbes Marketplace is the most profitable segment of the company, but Forbes only owns 40% of the subsidiary. Therefore, a deal would need to be made to cash out the other owners (Forbes executives and management).

Koch Equity Development has completed a number of high profile deals in the past:

• Molex (2013): One of the largest Koch acquisitions, a $7.2B all cash private transaction. Molex is a leading manufacturer of connectors and electronic components for computers and smartphones.

• ADT / Protection One (2016): Koch provided $750M in preferred equity financing to help Protection One, an Apollo portfolio company, take ADT private

• Infor (2020): Koch bought 100% of Infor during 2020 at a $13B valuation. Their first investment into the company took place in 2017, when KED invested $2.5B and received 5 of 11 board seats. Info is a top cloud based enterprise resource planning (ERP) company.

Only time will tell if Koch and Forbes mix

Headlines

• Charles Barkley looks to expand his media portfolio. FOS article here

• HungryPanda, a food-ordering app for the Asian diaspora, picks up $55M at a valuation of around $500M. TC article here

• Air Doctor raises $20M to plug a gap in how people find doctors while traveling. TC article here

• Nvidia’s venture capital arm is silently investing millions into healthcare. Forbes article here

• Waymo co-CEO Takedra Mawakana answers tough questions from the All-In Podcast. YouTube video here

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