A Legend Consolidating an $800B Industry!
QXO Investment Case!
Welcome to Global Equity Briefing, my twice-weekly investing newsletter.
I am Ray, a passionate investor and equity analyst. Today, I am analyzing an interesting roll-up business that’s led by a highly successful serial entrepreneur.
The popularity of M&A driven roll-ups has exploded in the last two decades, promising to generate strong returns for investors through economies of scale.
It is estimated that small businesses are responsible for over 40% of employment and GDP in the US. Many of these businesses operate in highly fragmented industries and are small, inefficient, and lack modern operational structures. This is a massive pool of potential acquisition targets.
The most basic idea of a roll-up is to acquire a bunch of companies in a particular industry and then consolidate all business functions to increase operating efficiency and lower costs.
Simply put, the thesis of a roll-up is that 2+2=5.
And there are few people in the world more successful at this strategy than Brad Jacobs.
Brad Jacobs is a serial entrepreneur who has founded 8 multi-billion-dollar companies, 5 of which are currently publicly traded. Over his career, he has done over 500 acquisitions, deploying tens of billions of dollars. 4 of the public companies have delivered incredible returns for shareholders and have a combined market cap of $80B.
In addition to earning billions for his shareholders, his strategies have made him one of the richest men in the US, with a net worth of $16B.
In 2022, he resigned from his position as the CEO of XPO Logistics to search for a new venture. And about a year later, the formation of the company we are analyzing today was announced.
QXO is Jacobs’ 5th listed company that was formed to modernize and disrupt the $800B North American and European building products distribution industry.
He is confident that this industry is ripe for disruption, as it is very fragmented with many small regional mom-and-pop operators who are led by ready-to-retire boomers. This is a comparatively old-school industry, dominated by paper, faxes, phones, and decades-old handshake relationships.
To kickstart QXO, Jacobs raised $1B, of which $900M was his own money.
This is a clear example of an investor putting his money where his mouth is. Jacob’s is heavily incentivized to build a large and highly profitable business. And historically, he has been a visionary business builder and an excellent steward of investor capital.
Jacobs is uniquely suited to build an industry-leading building products distributor because of his deep experience in logistics and digitizing complex systems.
In this report, I will tell you more about the legend leading this company, how roll-ups work, the opportunity QXO has, and, as always, conclude with a valuation analysis and a 2030 valuation model.
1. Brad Jacobs
2. Business Model
3. The Opportunity
4. Valuation
5. Valuation Model
6. Conclusion
1. Brad Jacobs
This is the first time I have dedicated a whole section to the CEO of the company. Usually, the businesses I cover are not so personality-driven, with the core thesis not heavily reliant on the person at the top.
This time it is different. A large share of the market cap of QXO is driven by the shareholders’ belief in Brad Jacobs as a CEO and leader.
He is a successful businessman who has done over 500 acquisitions in his career, earning a lot of credibility on Wall Street. Jacob’s is viewed as a competent leader who is well-suited to execute on his M&A strategy to create a building distribution leader.
He made his first wealth in the oil industry by founding and scaling two oil brokerage and trading firms in the 1980s. But his M&A and roll-up story began after he quit the oil industry to focus on different high-growth opportunities.
Let’s look at his track record: