Brad Jacobs’ latest venture could be a big winner.
Brad Jacobs might not be a household name among retail investors, but Jacobs has one of the best track records of any CEO working today.
Jacobs’ first company in the U.S. was United Waste Systems, which delivered a 55% compound annual return rate from 1989, when it was founded, to 1997, when it was sold to the company that became Waste Management. At the time, it was the fifth largest solid waste management business in North America.
Following that, Jacobs co-founded United Rentals and followed a similar roll-up strategy to deliver market-beating returns and become the leading equipment rental company.
In 2011, Jacobs acquired a truck brokerage that would become XPO Logistics for $150 million. XPO became the seventh best performing stock of the decade on the Fortune 500, gaining more than 3,000%. XPO spun off two other businesses, the RXO truck brokerage, and GXO Logistics, a contract logistics business, which together generate more than $20 billion in annual revenue.
In his career, Jacobs has done more than 500 acquisitions, giving him vast experience to draw on as QXO looks to make its first deal.
Image source: Getty Images.
Jacobs’ next project
Last December, Jacobs announced his next venture. Named QXO (QXO -0.71%), he intends to implement the same roll-up strategy in building products distribution that has worked so well in other industries.
Like the other industries he’s targeted, building products distribution is a massive and fragmented industry with an estimated $800 billion addressable market. There are 7,000 building supply companies in North America and 13,000 in Europe. Over the next decade, QXO aims to build an industry-leading company with $50 billion in revenue a decade from now. The industry is also growing steadily at a compound annual growth rate (CAGR) of 7% over the last five years, and should benefit from a housing shortage of roughly 4 million homes in the U.S. and aging housing stock.
The company has raised $5 billion to get it started with a major acquisition or two, but QXO has yet to pull the trigger. It did purchase SilverSun Technologies in order to become a publicly traded entity. After initially planning to spin off SilverSun, QXO later decided to hold onto it.
The QXO playbook
In a number of ways, building supply distribution makes a lot of sense for Jacobs and his team as the business is fundamentally a logistics and transportation one in which the challenge is moving products in a timely and efficient manner, taking advantage of cross-selling opportunities, and building out a network of warehouses and a transportation fleet to go with it.
Like Jacobs’ past ventures, building materials distribution also offers QXO an opportunity to disrupt the market and add value through technology as Chief Investment Officer Mark Manduca told The Motley Fool, “It’s absolutely ripe for tech innovation.”
Is QXO a buy?
The building supply distribution industry has already produced a number of winners on the stock market, though these stocks don’t get nearly as much as those in some other sectors. As you can see from the chart below, five of the stocks generally considered leaders in the industry have all outperformed the S&P 500 in recent years.
Since QXO has yet to make an acquisition, it’s hard to judge the company’s prospects, but Jacobs’ track record speaks for itself, and the chart above is a reminder that the sector has a history of outperforming the S&P 500.
With $5 billion in its war chest, QXO seems likely to make an acquisition or two that could immediately make the company a major player in the industry, unlike past ventures under Jacobs when he started smaller.
At this point, the stock is risky, but it could spike on a well-received acquisition. Over the longer term, Jacobs’ expertise in roll-ups and the opportunities in building supply bode well for the company. Buying a piece of the stock now could offer a lot of upside potential over the coming years.
Jeremy Bowman has positions in GXO Logistics, RXO, and XPO. The Motley Fool has positions in and recommends RXO. The Motley Fool recommends GXO Logistics, Waste Management, and XPO. The Motley Fool has a disclosure policy.
