What QXO Investors Might Be Missing
Beware of the dilution, because it’s about to hit... in a big way!
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There’s no question that Brad Jacobs has created a legacy of success among CEOs. And he’s not shy about it, based on his recent book, “How to Make a Few Billion Dollars.”
His strategies for building United Rentals, United Waste and XPO Logistics, among others, were money makers for investors. United Rentals, alone, is a case study in an exceptional business model that has stood the test of time.
With his latest venture – QXO – Jacobs is trying to roll up the building products industry.
Unlike his others, which were focused on highly fragmented industries that were ripe for consolidation, building products has already been fairly well consolidated, with a handful of very large companies dominating the various specialties.
But to hear Jacobs tell it, the industry is simply so good that he sees a long runway in an $800 billion space… one that will ultimately generate upwards of $50 billion in annual revenue for QXO over the next five or six years.
First, Some Background…
QXO was launched from a shell with Jacobs and a Who’s Who of backers in December of 2023, calling itself a “tech-forward leader” in building products. At the time, the company said…
The industry’s nascent use of technology, particularly AI and B2B e-commerce, represents a compelling opportunity for tech-focused entrants. According to industry data, the percentage of industry revenue derived from e-commerce is currently only mid-single digits, and this share is expected to triple by 2030.
Sounds logical, but make no mistake: underlying all of this is a classic Jacobs-style rollup in an industry that QXO’s initial press release says is “rich with acquisition opportunities.”
Enter His First Deal...
Well, I should say, his first completed deal.
Back in September QXO tried to buy Rexel, a French electrics supply distributor, but was rejected. Jacobs didn’t push back – maybe because two months earlier QXO had quietly approached Beacon Roofing Supply, which like all of its large-and-growing peers across the building supplies spectrum has become a mini-consolidator.
For Beacon, the focus has been roofing and related businesses like areas, where along with privately held ABC Supply Co. and Home Depot-owned SRS Distribution, it controls 55% of the sector.
That made Beacon an attractive target, and QXO formally launched its hostile bid for the company in January. Beacon rejected it… until QXO launched a tender offer that its investors sold into, at which point, it had no choice but to sell.
The deal closed less than two weeks ago.
By acquiring Beacon, QXO will immediately generate nearly $10 billion in annual revenue... or, in one fell swoop, 20% of Jacob’s stated goal.
As he explained it on the Bloomberg’s Odd Lots podcast, with Joe Weisenthal and Tracy Alloway...
Not only does everyone need a roof, but everyone has to fix their roof every once in a while. So roofs break. You know, after 15-20 years you need a new roof. And you have hurricanes and storms/ And if your roof is leaking, it's not a discretionary choice. You have to fix the roof.
So 80% of Beacon sales is non-discretionary if someone needs to fix their roof. That's what I like about the business. It's a largely non discretionary ‘stuff’ footprint.
What’s more, he added...
The footprint is North America, so it's 97% United States of America, 3% in Canada. Almost everything is manufactured and sold in the US. And the stuff that's in Canada is manufactured there for the most part – and so there's not a tariff issue. So it's an interesting business.
It's a well positioned business. The industry is simply so good, with 80% of Beacon’s business non-discretionary – after all, everybody eventually needs a new roof.
He makes a compelling case. And that’s just in roofing. Rexel operates in electrical supplies, and QXO has made it clear it is targeting all aspects of building supplies, access control, construction supplies, doors and windows, electrical components, fencing and decking, HVAC, infrastructure, landscaping, lumber, plumbing, pools, roofing, siding and water – “among others.”
And with Beacon, he’s off to a fast start… already relaunching the Beacon website, with QXO as the brand, with an online app, no less.
And QXO promotions…
But here’s the thing...
In the near term, QXO shares face a risk that most investors appear to be ignoring or simply don’t know about.