Why Brad Jacobs Is Spending $11 Billion on a Roofing Supply Business

Brad Jacobs has made a fortune in his career buying and building big logistics companies, like United Rentals, Waste Management, XPO (trucking company), GXO (warehouses), and RXO (freight brokerage). His current venture is QXO, which raised billions of dollars in order to enter the building supply industry. After a long search and a couple months of battling with the executive team, QXO announced last week that it would be acquiring publicly traded roofing supply company Beacon Roofing for $11 billion. So why expand into roofing supply? And why Beacon specifically? We sat down with Brad to talk about the roofing industry, his vision for improving the company, what other opportunities are out there, and what he's seeing in the general economy right now. Read more:QXO Agrees to Acquire Beacon Roofing Supply in $11 Billion DealAffordable Housing Developers Stalled by Blocked Federal Funds Only http://Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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• 0:00Speaker 00

  Finance is increasingly being built on digital rails. But as the adoption of virtual assets, tokenization and stable coins grows, can regulation not only keep pace but help accelerate it? Find out more later in the podcast.

• 0:16Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting and hiring practices.

• 0:59Speaker 01

  But according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company. And Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job ads that candidates quote, "must be willing to work extended hours and weekends as needed." One major perk for all that hard work? Employees' access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at chatgpt.com.

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• 2:30Tracy Alloway?

  Hello and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

• 2:34Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:36Tracy Alloway?

  Joe, do you think it's fair to say it's been kind of, kind of a quiet year for big deals? I think that's fair.

• 2:43Joe Weisenthal?

  I thought you were like, kind of a quiet year.

• 2:45Tracy Alloway?

  Oh, no.

• 2:45Joe Weisenthal?

  Dot, dot, no. For big deals, yes. Actually, this has been kind of, you know, one of the big thematic surprises of 2025. Obviously, when the new administration came in, there was like, deals. And at least for now, I would say largely, you know, macro stuff. We actually have not gotten a big deals wave so far.

• 3:03Tracy Alloway?

  Right. The reason we haven't had that many deals is because there's been so much news, arguably, right? There's all this uncertainty in the broader market, so people aren't really sure what they want to do, if they want to risk at all. But that said, there is some stuff getting done. And in particular, there was recently a very, very big deal, a blockbuster all cash deal, some have been saying. And it involves someone who's been on the show before.

• 3:28Joe Weisenthal?

  A friend of the podcast.

• 3:30Tracy Alloway?

  That's right. So Brad Jacobs, his new company, QXO, bought Beacon Roofing for, I think it was 11 billion. Is that right? So again, an all cash deal for $11 billion in this market, kind of notable. We should talk about it.

• 3:47Joe Weisenthal?

  I love talking to Brad. We've talked to him a handful of times on the show. Often, we've talked about his philosophy of buying companies, turning them around, turning them into billion dollar juggernauts. We talked to him about logistics and supply chains. But now we can talk about something specific and how he's going to turn one specific company around. So I'm excited.

• 4:05Tracy Alloway?

  Exactly. Okay, so let's get into the specifics. We have Brad Jacobs, billionaire founder of XPO, GXO, QXO, as I mentioned, basically all the XO companies, plus United Waste, lots and lots, a serial entrepreneur. Let's just put it that way. Brad, thank you so much for coming back on Odd Lots.

• 4:24Speaker 06

  Tracy, it's great to be here.

• 4:25Tracy Alloway?

  All right. So congrats on the deal.

• 4:27Speaker 06

  Thank you.

• 4:27Tracy Alloway?

  From what I understand, this has been in the works for quite a while, and there was a lot of back and forth.

• 4:32Speaker 06

  Yeah. So before we even Did Beacon, we were looking at fifty five, as you know, because I was on the podcast, looking at fifty five different industries and trying to pick the one that matches our skill set, that matches our playbook the best, the things that worked for us at all the companies that you mentioned before. And then we settled on building products, distribution, because we liked it a lot, the size, the growth, the fragmentation, the opportunity to apply technology. And then we zeroed in on Beacon. And we said, Beacon is the one. That's, that's the girl I want to marry. And we said, this is like a perfect match for what we do. And unfortunately, they didn't want to sell. So we had to do a little hostile there, but we're past that. And now we have a friendly deal and we're looking forward to closing it.

• 5:13Joe Weisenthal?

  Tell us about Beacon. What is the actual assets that they have that you're acquiring?

• 5:18Speaker 06

  So Beacon's a distributor. It's a distributor of mostly roofing, but they also do waterproofing and other ancillary products, but it's mostly, mostly roofing. And what I like about that is everyone has a roof. The roofs aren't going anywhere. They're not going into the metaverse, they're not going to way to AI. I mean, all structures are going to need a roof and there's going to be more roofs needed next year and the following year and the following year and 10 years from now, there's, there's more. So there's underlying growth.

• 5:43Joe Weisenthal?

  I love the simplicity. Everyone needs a roof. I was like, yeah, I actually can't argue with that. All right, keep going.

• 5:47Speaker 06

  Not only does everyone need a roof, but everyone has to fix their roof every once in a while. So roofs break, you know, fifteen, twenty 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 eighty percent of Beacon's 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.

• 6:12Joe Weisenthal?

  What's the footprint?

• 6:14Speaker 06

  The footprint is North America. So it's ninety seven percent United States of America, three percent in Canada. Almost everything is manufactured and sold in the US. And the stuff that's in Canada is manufactured for the most part. And so there's, there's not a tariff issue. So it's, it's an interesting business. It's a well-positioned business.

• 6:32Tracy Alloway?

  And what do you plan to do with it now that you have it?

• 6:34Speaker 06

  I'm going to double the profit. The same thing we did, the same thing we did at Conway, at XPO, we doubled the profits in three years. Same thing we did with Norbert Dottor Song in Europe, which is a very well-managed premier company there. We doubled the profits again in three years. We're going to apply the same playbook. We're going to start with communicating and talking to all the people. And we announced the deal on Thursday morning and at eleven o'clock, we had an all-employee Zoom. And I had the privilege and the honor and just the wonderful experience of doing a Zoom with thousands and thousands of Beacon employees. And it was less me lecturing and giving a speech and more asking questions and starting to learn the business.

• 7:14Tracy Alloway?

  I'm really curious, this wasn't officially a hostile takeover, although as you mentioned, it was, parts of it were hostile-ish, let's say hostile adjacent. So when you come into a company like that, that initially resisted your overtures from marriage, as you put it, does that make it difficult to actually like start to integrate this, start to change the business model? What is the relationship actually like with the workers?

• 7:40Speaker 06

  Well, it does make it a harder start for about 10 seconds, but after everyone realizes, okay, this is done, we're buying, we're married, we're getting married here, we're engaged, we have to make this work, that's history, that's past. And the resistance is more on the senior levels. I've been doing Zooms since that Thursday, all employees Zoom. One of the reasons my, well, the only reason my voice is worse is because I've been doing nonstop Zooms. I've been doing Zooms with 15 or 20 branch managers and salespeople and others at a time for an hour, two hours, learning the business and reaching out and really understanding two things, which are, one, what's going great in the company that we'd be crazy to change? Like, help us understand like, what's the strengths of the company that is fantastic?

• 8:24Speaker 06

  You know, it's a 97-year-old company, it's a serious company. What are the good things about it that we got to keep? And then the second question is, what can we improve? What can we do better? What are your needs? What are your gaps? How can we help you? And we try to keep it simple in all these Zooms and town halls we're having, we're trying to just ask those two questions. And we sent a survey to every employee at Beacon who has an email address, and we asked them those two questions. We asked them, what's working really well? And what's your single best idea to improve the company? We're going to read all those thousands of responses. And we asked them another question. We asked them, rate your job satisfaction on a scale of one to 10, with 10 being the most, one being the least.

• 9:06Speaker 06

  And we track that. So that's the baseline. So we're going to keep surveying the employees and figure out, are we doing our job in terms of making people happy? Are we doing our job of making people want to come into work every day and really loving being part of this organization? And if we take care of that, if we get the morale up, get the engagement up, usually everything else falls in place.

• 9:27Joe Weisenthal?

  Whether it was your initial due diligence, sort of discovering Beacon, or in your Zooms post-acquiring Beacon, what are the weaknesses that you believe you could have?

• 9:38Speaker 06

  So I don't like the word weakness.

• 9:40Joe Weisenthal?

  Okay.

• 9:40Speaker 06

  I don't think opportunity, opportunity. Thank you. That's a subtle reframing, but it's important one because you don't want to go into a company and demoralize people and say, what's wrong with you? You want to talk about where can we do better? What's working okay?

• 9:54Joe Weisenthal?

  Where can Beacon do better under your, under your management?

• 9:56Speaker 06

  So the honest answer is, I have a lot of hypotheses. I have a lot of ideas of things that have worked in other companies that we've run and did so well. But I don't totally know yet.

• 10:07Joe Weisenthal?

  But such as? Give us some examples.

• 10:09Speaker 06

  I'm going to. But I will know in a month from now.

• 10:12Joe Weisenthal?

  Okay.

• 10:12Speaker 06

  And the reason I'm going to know for a month from now is I'm going to get the input from thousands and thousands of Beacon employees who are in the game every day and have been in the running. So I was on a Zoom with branch managers yesterday from the Northeast, where I grew up, and some of those branch managers were there for 30 years, 35 years. I mean, they're very long in the tooth in this business. They get it. They've been through all the trials and tribulations. They've run the business in good times and bad times, et cetera. I'm learning from them. So we're going to modify it. But let me answer your question. So when we go into a company, so how did we double the profits at Conway? How did we double the profits at Norbeil? It starts with the people. It starts with creating an atmosphere, a culture, a vibe in the organization where people genuinely,

• 10:55Speaker 06

  sincerely feel their value, they're respected, they're part of it. They're an important part of it and they're an essential part of it. And that there's feedback loops where there's two way communication between us and every part of the organization. So we're a very highly self-aware organization. That's very critical. That's really the first step. The second step is figuring out, okay, so like Beaking, for example, has a little over 8,000 employees. Who wants to stay? So we'll, and that will get all this input from everybody, from all the town halls and the Zooms and the surveys. And then we'll give a first iteration of what we heard and what we think we should do to double the profits of the company. And then we'll get more feedback and we'll get more iteration of that. And then we'll have a final, final plan. And that'll be the plan.

• 11:39Speaker 06

  Then we ask everybody, are you on board? Do you like the plan? Is this something you have your heart into? Is this something you want to spend your next many years of your life doing? Is this something that gets you inspired and motivated and uplifted and engaged? And if so, come out in the pool, join the party. And if it's something like, you know, I don't want to be part of a high performance culture. I don't want to move that fast. Well, then, you know.

• 11:59Joe Weisenthal?

  It sounds like you have an intuition that the business could run as well as it is without as many employees as it has.

• 12:05Speaker 06

  Well, I don't know that yet. I mean.

• 12:07Joe Weisenthal?

  It sounds like that's sort of what's applied.

• 12:10Speaker 06

  Not really.

• 12:11Joe Weisenthal?

  Let's see who wants to leave. Let's see who really wants to stay.

• 12:13Speaker 06

  No, no, no. I want to be clear about this. It's a mistake for me if I would go into a company that I bought with final conclusions before I have the information. And most of the time, you can pare back the headcount, mostly in the mid and upper, not in the, in the field. The field often is understaffed because companies do these rifts, they do these reductions in force, which basically is a HR speak for firing people. And they bear the brunt of the cutbacks. And sometimes you have to actually add people. You don't have enough salespeople. You don't have enough drivers. You don't have enough of basic functions. But we're not a private equity firm that goes in and just slashes and burns to try to get short-term profit improvement. Because that doesn't work. That's not sustainable long-term. There'll be places where we need to add.

• 12:58Speaker 06

  There'll be places we need to subtract. And we'll, we will look, we will do a zero-based. Blank slate analysis of every single position, every single person, every single function to say, is this a headcount that we must have? Like, we need safety people, like, you can't cut back safety people. Is this, you need a branch manager. They have 600 branches, almost, so they need 600 branch managers. You can't reduce branch managers. So, or is this something that's a nice to have? So, you know, if we have some big extra profits, maybe we can have this. But, and then the third category is like, we really don't need this. This somehow got into the organization, really doesn't belong there. And then we'll modify the organization's structure.

• 13:40Speaker 06

  Now, I don't know, I really don't know whether that'll be a radical restructuring or a minor restructuring, almost nothing. I don't know yet. We gotta get into it. We've been outside in until last Thursday, but we'll find out. So, to answer your earlier question, so people is the first thing. We figure out, what is the plan? Who wants to be part of this? Then we figure out, okay, what are the levers? What are the steps? What are the things we gotta do in order to double the profits? And then who's gonna be in charge of what? And then we take the compensation programs and we align the incentives to achieving those metrics, to very objective, very concrete things, so that, once we know the plan and we know the levers,

• 14:22Speaker 06

  we can attach owners to different levers and pay them if they succeed. It's the most satisfying thing to be paying huge bonuses, because the only way you're paying those huge bonuses is if you're succeeding. So, that's what we're trying to do, we're trying to win. So, the first step is all this people stuff, all the people stuff. The second step is the actual blood and guts of the business. So, we're a distributor. Beacon is in the middle between a manufacturer who makes shingles and other building products, and on the other side, the general contractors and the home builders who buy these things. So when you just step back and look at the business model, it's a pretty simple supply chain. So what do you have to do? You have to figure out a way that you can optimize your procurement.

• 15:07Speaker 06

  You have to go to your vendors and say, you can't just go to your vendors and say, hey, give me X percent discount. They're going to say, well, like, why? Like, why should I give you better than that? So you have to really understand what would they value? What would the OEMs, the original equipment manufacturers, what would they appreciate? And what would help them save money so that you earn a lower price? You get a bigger rebate. And so, for instance, United Rentals. When I bought United Rentals, we started buying hundreds of companies. We went to the manufacturers of the skid steers and the generators and the light towers and so forth. And we said, what do we got to do to get big discounts on the price? Because we really want, you know, we're bigger, how can we get a bigger discount? And they said, well, one thing you could do is you could consolidate your vendor base so that, you know, you have bigger orders with us.

• 15:51Speaker 06

  And the other thing you could do is you give us more advance notice so we can plan more because that would save them cost. And so we said, good, that's a great partnership. We reduced all those vendors. So, for instance, in Aerolifts and Booms and Scissors, we reduced it down to two, Genie and JLG. I think they're still the only two main vendors for Aerolifts, United Rentals, 20-something years later. So we got big discounts and the manufacturers like doing this. We're going to have to do a similar process with the manufacturers here. And then you have, on the other end of the equation, selling. So we're selling all those to customers. Are we pricing them right? Are we pricing it methodically, scientifically? Are we using algorithms? Are we using technology to figure out elasticity? To figure out if we raise pricing, this is how much business will lose, but this is what it'll do to profit.

• 16:35Speaker 06

  If we lower pricing, this is how much we'll increase volume, this is to profit, and so forth. And the third category of stuff to do, Joe, is everything in the middle. Making sure our cost structure is appropriate, not too lean, but not excessive.

• 17:03Speaker 00

  What's next for virtual assets? I'm Jacob Rees, host of Economy Scale, a series exploring growth in key global sectors. And in this episode, we're diving into the digital forces shaping finance. Sean McHugh from Dubai-based Virtual Assets Regulatory Authority has this to say.

• 17:19Speaker 07

  We're seeing a lot of institutional players come in, digital asset dedicated hedge funds, high-frequency traders and that sort of thing, and folks who service institutional clients.

• 17:28Speaker 00

  As more capital enters the market, adaptive regulation is likely to become increasingly key. Rees-Merritt of Ripple says.

• 17:36Speaker 07

  A lot of regulators globally would like to keep the industry at arm's length. That's the opposite here. I think also what you'll find is that regulation and frameworks can come out, but some of them are maybe a slight iteration on some 80-year-old policy and not actually in line with what the technology can do and offer. And again, that's very different in Dubai.

• 17:55Speaker 00

  Listen to the full episode wherever you get your podcasts. This series is brought to you by Bloomberg Media Studios and the Dubai Department of Economy and Tourism.

• 18:05Speaker 01

  This is the Bloomberg Tech Minute, brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Businessweek's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw, innate intelligence. A spokesperson for SpaceX didn't respond to a request for comment on its recruiting

• 18:47Speaker 01

  and hiring practices, but according to recruiters, advisors and those who've interviewed for jobs there, it's the space exploration dream that draws people to the company, and Musk invokes that dream regularly to remind workers why they're there. Prospective hires are told that the job will require stamina, including in job hours. That candidates quote must be willing to work extended hours and weekends as needed. One major perk for all that hard work employees access to equity, either the right to buy shares or payment in the form of restricted stock units that vest over time. That's the Bloomberg Tech Minute brought to you by ChatGPT. Get started at ChatGPT.com.

• 19:28Tracy Alloway?

  You know, I mentioned in the intro that it's been relatively quiet for M and A and deals so far this year. I think volumes are actually up slightly, but certainly we have not seen the deal boom that a lot of people were expecting with the new administration. When you announced your deal, you said you already have antitrust clearance from both the US and Canada. I'm curious, what's the general vibe from this administration when it comes to deal making versus previous administrations? I know you have a very, very long history of doing deals and you've seen lots of different administrations come and go. What was it like this time around?

• 20:08Speaker 06

  My teams and I have done over 500 acquisitions. We've never had one deal blocked. We've had a deal here or there where the regulators, they want you to promise not to raise pricing on this category of customer or we can divest this little part of the business. But generally speaking, we haven't had a problem with that. Here it was very easy to get antitrust clearance. And by the way, it was with the previous administration.

• 20:28Tracy Alloway?

  Oh, right.

• 20:29Speaker 06

  Because we don't have any, we don't have any existing distributors. So it's not like we had a bit, we had a roofing distributor and we're buying a roofing distributor. And now we're going to get twice the market share in a market where we're entering it for the first time. So there really weren't any antitrust considerations.

• 20:43Joe Weisenthal?

  What is it about the nature of roofing supplies such that they're still domestically made? It seems pretty good that you're entering a business in which tariff risk isn't going to be much of a risk factor for the business. Why are roofing supplies still in 2025 more or less built where they're used?

• 21:01Speaker 06

  You know, it's just the way it worked out. It worked out over time that American manufacturers figured out a way, even though we have higher labor costs than overseas countries. To produce shingles that the American consumer wanted, which is a little bit different. You go country to country in Europe, even they have different specs for the shingles. You go in Asia, they have different specs because there's different environments, there's different climates, there's different cultural, there's different appearances, there's different colors and textures and so forth. And American manufacturers did a real good job of that. Now, maybe that's a good model. Maybe that's a good model for other manufacturing that went overseas over the last few decades that maybe those manufacturers need to up their game and figure out what is it that's our specialty? What's our strength? What is it that even with higher labor costs here in the United States, we can please

• 21:46Speaker 06

  the customer more? And the other advantage of American manufacturers selling in America is you don't have all this transportation costs. It costs a lot of money to move goods thousands and thousands of miles. And you also have shorter lead times because you're right here. So I actually am bullish about American manufacturing. I think American manufacturing, fast forward five years from now, 10 years from now, I think it's going to be a lot more here onshore.

• 22:09Tracy Alloway?

  Your initial takeover target, though, was a company called Rexel, which I think is a French electric equipment supplier? Is that right?

• 22:18Speaker 06

  Yeah.

• 22:18Tracy Alloway?

  Okay. And they said no. They rejected you. And you moved on pretty quickly. Why did you change your minds on that one? Is it the case that like French companies are harder to buy than American ones? Or are you worried perhaps about how tariffs would impact that business versus something like roofing?

• 22:36Speaker 06

  Well, we never confirmed that we were talking to that company publicly. Somehow some reporter got that through all the...

• 22:43Joe Weisenthal?

  Darned, darned reporting and actual journalism.

• 22:46Speaker 06

  But when we were reportedly looking at that French-based company, which has a lot of, its biggest country is the United States, actually, when we were looking at that, we were reportedly looking at that, this was still in the previous administration, there wasn't, tariffs wasn't really in the air. So it really wasn't about tariffs. It wasn't that some other company was not good. The company you mentioned is actually a really good company and has great prospects. But Beacon was perfect for us. I mean, Beacon is absolutely perfect for our particular skill set, the kind of things we do to increase the profits of a company. This applies to Beacon, which is why I did, which I, is something I've only done once before in my life out of more than 500 acquisitions, which is I did an unsolicited takeover. We proposed an alternative slate and we did a proxy solicitation.

• 23:30Speaker 06

  It was, because it was such a good match. It was a match made in heaven that we should just not run away from.

• 23:35Tracy Alloway?

  Oh yeah, speaking of this, so you raised your offer, right? After the initial rejection. And right now, I am looking at a chart of shares of a company called James Hardy. It's an Australian company. And they just announced that they were buying something and their stock has tanked. Because people are worried that they've overpaid for a US asset in the current environment. Do you worry at all that you've overpaid after adding on, you know, pretty decent premium?

• 24:05Speaker 06

  Well, I'm not in the weeds of that deal because that's a manufacturer. So I don't follow it as closely. But from what I've read, it looks like they paid something like 19 times EBITDA. And we paid 10 and a half times EBITDA. So now, if you pay very high multiples for companies, you know, that affects shareholder value. Now, I'm not condemning that deal because I'm not knowledgeable enough to condemn it. But generally speaking, the price you pay matters. It matters a lot because the ROIC, return on invested capital for acquisitions, the IC is the purchase price. And if you have a high purchase price, that lowers the ROIC. Your stock price is a function of your return on capital. Investors give you money, debt and equity, now you gotta get a return on that. And if you overpay for acquisitions, and I'm not saying they did because I don't know

• 24:50Speaker 06

  enough about it, but if you're perceived to be overpaying, then, you know, your stock's going to go down.

• 24:55Tracy Alloway?

  You're comfortable with the 40% premium that you paid?

• 24:58Speaker 06

  I love the price we paid. The price we paid is a, is a fair price. It's not, it's not a terribly low price, but it's certainly not a high price. And this is a price that when you're paying 10 and a half times EBITDA, and that's before you double EBITDA, you know, you're paying like, you know, mid-single digits EBITDA for a nice business that's growing, that's got long-term growth to it, that 80% of it is nondiscretionary, that's tariff immune, and is the main reason why, out of the 55 different industries we looked at, we picked building products distribution, which is...

• 25:30Speaker 06

  This is an industry that's got growth to it because there's a shortage of something like four million homes in the United States. That's a big shortage and it's one of the few things that both Democrats and Republicans completely agree on, that we need to solve this housing crisis. This housing shortage has to be solved. So there's going to be more construction. It'll be cyclical, but over the long-term arc is going to be more and more building. And then they're old. They're old. There's 40 million homes that are over 40 years old. By the way, they're all going to need to change their roofs. They're all, they're all what's called prospective customers for, for this business. So it's exposed to growth just for showing up and being in the game. And that's a good thing because you can do a thousand things right, but if the underlying

• 26:14Speaker 06

  trend is in your face, it's coming the wrong way, that's tough.

• 26:17Tracy Alloway?

  Joe, as proof of concept of Brad's business plan, I took delivery yesterday, my husband and I, of a bunch of roof shingles.

• 26:24Joe Weisenthal?

  Always love a crazy house update. What's up?

• 26:27Tracy Alloway?

  Yeah, there we go. Because our insurance company says we have to replace the roof on our barn. So literally, you know, we have to have roofs and we have to do what the insurance company says.

• 26:38Joe Weisenthal?

  You're welcome, Brad. You've made your career sort of doing the deals like this, one after another sequentially. And unfortunately, time is linear and scarce and we only live once. If you could clone yourself and there were 100 Brad Jacobs, are there a lot more deals like this sitting out there that the only reason you're not doing them is because unfortunately we only have so much time? And the reason I partly ask this is because there are a lot of people in recent years, ex-MBA's, people who have told the story that there's tons of businesses out there that aren't being run at their maximal operational performance, some at the very small level, go buy a pool cleaning company and then roll it up into 10 and then you can make it better

• 27:23Joe Weisenthal?

  and make a bunch of money or an HVAC company, whatever. How much opportunity is there if time for you weren't a scarce asset?

• 27:32Speaker 06

  So first of all, that's a scary thought, 100 Brad Jacobs. But the answer to your question is yes and no. Yes, there's tons of opportunities of going into companies and significantly improving the profitability of them. But no, in the sense that there's not a lot of people can do that. So I'm not the only guy who can do that. Ed Breeden can do this. Larry Culp can do this. Dave Cody can do this. There's a bunch of executives who've come out of academy-trained organizations like Ford.

• 27:58Joe Weisenthal?

  I guess if there are 100 bridge engines, they'd all be competing against each other, and that would drive up the price of Beacon Roofing even further. Anyway.

• 28:05Speaker 06

  We'll stick with one.

• 28:06Joe Weisenthal?

  Okay, yeah.

• 28:07Tracy Alloway?

  Well, are you done on the deal-making front? Or is this gonna keep you busy for a while?

• 28:12Speaker 06

  Trace, this is the first one.

• 28:13Tracy Alloway?

  Yeah.

• 28:14Speaker 06

  We're gonna build a $50 billion company over the next five or six years.

• 28:17Joe Weisenthal?

  Well, this is actually.

• 28:18Tracy Alloway?

  How quickly, though? Like, are you looking already?

• 28:21Speaker 06

  Absolutely. I have a deal team. We're looking at and we're talking, and we haven't even acquired Beacon yet. But even as we're about to acquire Beacon and we're focusing on the integration and optimization, we're still looking at other deals. We have tons of capacity to do that. I don't like to do like five deals at a time, five big deals. But I actually like doing a couple of deals at a time, because then you do one reorganization, and then you pause for a year, year and a half, while you're integrating and optimizing. You don't have to like start and stop. So I kind of like doing that. But when you look at M&A, M&A is gonna be a big driver for our growth here. That's in our DNA. So $10 billion with Beacon gets us one-fifth of where we're gonna be. So it's a good start, but it's really just a start. The acquisitions that Beacon have been doing are these relatively smaller ones.

• 29:05Speaker 06

  And, you know, they do like a dozen, 15 a year. And I met with the head of the M&A, the nice guy. And I asked him, my challenger, I said, "What's holding you back from doing two or three times that?" He said, "Really, nothing. It just hasn't been our goal. You just need a couple more people, and, you know, we can get going. We have the backlog, we have the relationships, we have the network, we have the know-how." So I said, "Okay, well, I think we're gonna do that. And we need to get more input and get more feedback before we just impulsively say, you know, triple amount of acquisitions you're doing. But I think that's pretty likely we're gonna come out saying, 'Let's do more. Let's increase the pace of these smaller tuck-in acquisitions, because the multiples are very reasonable on those smaller ones, and the synergies are really great.'" Then you have not a lot. You got a couple handfuls of medium-sized ones, ones that are like $50 million of EBITDA

• 29:50Speaker 06

  or $250 million EBITDA or something in between. I want to take a real hard look at those. If we can go get those at reasonable prices, then they absolutely belong as part of us who want to do that. But then we'll look at M&A and other verticals that are. For the most part, related, but not roofing, but something that's in the same part of the cycle of the of the building cycle. And we'll do acquisitions there. So we're going to do a lot of M and A. We're also going to do greenfields. So when you Google the, you come across a lot of stuff about the M and A, like all these stories about all these 500 deals and this deal and that deal and this 11 billion, 7 billion and 3 billion. But we really made the money on the greenfields. We made the money on two things. We made the money on improving the profits of the companies we bought by sticking to

• 30:34Speaker 06

  the playbook and doing greenfields. Greenfields, by that I mean cold starts, just instead of buying someone, just renting or buying some leasing or buying some space in a building and hiring some people and

• 30:45Joe Weisenthal?

  And it's yours from day one.

• 30:46Speaker 06

  It's yours from day one. And you don't have it. So go back to the ROIC, Joe. The IC is a lot lower. The invested capital in a startup is much, much lower than paying 10 times the EBITDA to buy somebody. So we're going to, we're going to do those two. So we will have M and A in our, in our game plan, but we're also going to have these greenfields. And you look at United Rentals, for example. United Rentals, we did 200 some odd acquisitions. We did 200 some odd greenfields. I got a ton of press for the M and A. I don't think I got one article about the greenfields. I mean, they paid a lot more money on the greenfields.

• 31:32Speaker 01

  This is the Bloomberg Tech Minute brought to you by ChatGPT. I'm Carol Muster. Getting hired at SpaceX requires exceptional ability and may include having Elon Musk review a candidate's resume. So writes Bloomberg Business Week's Lauren Grush. She reports that the company culture is defined by Musk and job candidates must understand that a commitment to SpaceX means adhering to this culture and exhibiting loyalty to Elon Musk. To get hired, candidates must demonstrate their achievements from past jobs and hands-on experience matters more to recruiters than advanced degrees, with the company looking for people with raw innate intelligence. A spokesperson for SpaceX didn't respond to a For comment on its recruiting and hiring practices.

• 32:16Speaker 01

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• 32:55Joe Weisenthal?

  Can you give us, if, whether we're talking about deals, a little lay of the land about market share? Like, how big is the space? And how much market share does Beacon have? And how fragmented is it and so forth?

• 33:07Speaker 06

  It depends how you categorize, how you count it. But generally speaking, it's somewhere between 50 and 75 billion dollars. So it's not huge. It's not like a 500 billion dollar TAM or a trillion dollar TAM. But it's not insignificant either.

• 33:18Joe Weisenthal?

  You're talking revenue?

• 33:20Speaker 06

  That's revenue, yes. And then you have, Beacon has 10 billion of that. So it's somewhere between, you know, 15, 20% in that kind of range. There's two other, actually, very good companies. There's one called ABC, which is run by this, was chaired by this amazing woman called Diane Hendricks, who had the pleasure of me briefing, she probably doesn't remember me, at an event in Palm Beach that Byron Trot was having a couple of years ago. And this is, this is a woman who's built up an amazing company. When you go to the trade shows, and I've gone to a few of the trade shows, they got the hottest booth, a lot of activity. There's a lot of energy there, it's very dynamic, it's very self-confident. It's got, it looks like a real good company from the outside. And then there's another company that a very iconic entrepreneur, similar to me in a lot of different ways, called Dan Tinker, built up. It's called SRS.

• 34:06Speaker 06

  And they got backing from Leonard Green and from Berkshire Partners. And they built up a real nice company. They sold it for 15, 20 billion dollars to Home Depot. So now it's part of Home Depot. But that was, that was also a spectacular story. I mean, a real American success story where they had 20 20% organic revenue growth between 2010 and 2023. I I've studied a lot of industries. I've been in a lot of industries. I've not seen a lot of industries where a company can have 20% organic revenue growth. That is very impressive between price, volume and greenfields. Not through acquisitions, organically, organic revenue growth. Very, very impressive, which is why I got this great multiple when he sold it to Home Depot.

• 34:46Joe Weisenthal?

  America is amazing.

• 34:48Speaker 06

  Those two companies and Beacon together have more than half of the half of the industry. But then there's these other companies, these independents and these smaller companies that are smaller, but are really strong, feisty companies.

• 35:01Tracy Alloway?

  So people have to have roofs over their heads, as we discussed. It's not a discretionary item for most people. But at the same time, I imagine if the economy slows down, if interest rates are high, then maybe construction starts to slow and you see fewer sales of roofing shingles or whatever. Give us your general read on economic activity right now. What are you seeing from your perspective as, you know, chairman and CEO of QXO, your first acquisition, but also taking into account all of your other many, many logistics businesses?

• 35:36Speaker 06

  The two parts to the question there. The first part is what happens to the distribution of roofing supplies and waterproofing supplies too, because that's that's part of the very fast growing part of this business in a recession or an economic slowdown. For 80% of what Beacon does, you're still going to, it's non-discretionary. If you have a leaky roof, you're going to fix it. And whether the economy is good or bad, that's not the point. The point is you got, you got rain coming down into your living room. You have buckets that are getting it, you're going to change your roof. You just are. But 20% of the business is with new construction and it is discretionary. It's something, it's not just regular maintenance. And there, that would be affected by it by an economic slowdown. But the vast majority of the roofing business is non-discretionary.

• 36:18Speaker 06

  It's it's much less sensitive to the economic cycles than other businesses I've been in. Now, to the 20% that's more directly affected by the economy.

• 36:29Speaker 06

  I don't know. We're in a situation in the economy right now where I can't point to any other history where this has happened before. So I don't have a good muscle memory to say this is what's happened the last five times we were in this situation and therefore that's likely what happened here. We've never had the type of economic policy and the trade policy that we've got going on right now. So we're on new territory. And I think it's evolving, the policy, and it's changing. And then you have reactions from the counterparties, from the other countries. So I don't know how it's gonna play out. I don't know how. I don't know anyone knows how it's gonna play out. That's what's very interesting about it. It's very fun times to be living in right now.

• 37:02Tracy Alloway?

  Okay, this is a question we like to ask people who are actually doing stuff, so dealmakers and people like that. But what was the hardest part of this acquisition? So I know it's still early days, but just in terms of the process so far, what did you find most challenging?

• 37:18Speaker 06

  So up until now, we don't close the deal till the end of April. Up until now, when we've been negotiating to do the deals, they didn't want to sell. And it was just, we just got the hand. We just couldn't get a conversation, couldn't get a meeting. I never met the CEO until last week. We just couldn't get a meeting and they were reluctant to sell. So that was, it's kind of tough to buy a company when you don't have someone on the other side who wants to meet with you, they want to sell. They were proud of their company, they had a high value expectation, and they wanted to continue executing on their planet. They had confidence in. So that was tough. It was tough to overcome that. I felt, I felt that the right thing to do was to make them an offer and just stick to that price no matter what happened. Now, as it turned out, Tracy, between when

• 38:02Speaker 06

  we made them the offer, which I think was in November, and as the months progressed during the offering process, the market got worse. The economy got worse, the building products got worse, the stocks got worse. And we had people advising us, saying, you know, you ought to just withdraw your offer, let their stock go down 20 or 30 bucks or whatever it would have gone down, and come back with a much lower price. And I really struggled with that. That's just not how we roll. And yes, we would have saved some money, but it would have been, I don't know, we had ethical challenges with that. It's just not, it would hurt our reputation. And we just, we just didn't do it. We liked the price of 124 and 35 cents, $124.35. It makes sense. We're going to be able to double the profits over time. So it worked. We're buying at a reasonable price. But it was

• 38:46Speaker 06

  a challenge to figure out, do we play tough guy like a private equity guy would have done and retrade the price? Or do we just do the right thing and stick to the price? So we stuck to the price.

• 38:54Joe Weisenthal?

  In your life experience, does everyone have a price?

• 38:58Speaker 06

  Well, what do you mean by that?

• 38:59Joe Weisenthal?

  You know, people are like, oh, I love this is my family business. I would never sell it, or I would never leave this job. I would never leave Bloomberg. I would never, whatever. Does everyone have a price?

• 39:09Speaker 06

  No.

• 39:10Joe Weisenthal?

  Okay.

• 39:10Speaker 06

  Some people are just so.

• 39:12Joe Weisenthal?

  Some people have principles?

• 39:13Speaker 06

  Well, it's not just principles. Some people are in love with what they're doing in life, whether it's in arts, or whether it's in academia, or whether it's in business. And they just really love what they're doing. It's not a question of money. I mean, the people I know in life who are non-money people, who are just not into money, they're the people I respect the most, actually. I mean, this weekend, I sponsored the Black Music Symposium at Bennington College, where I went to school 50 years ago. And it was really exciting. And one of the musicians, who's a really good musician, called me out. I said, look, I think I'm still a musician, even though I'm not doing music, I'm doing business, because I'm still improvising, I'm still putting teams together, and I've got harmony going on, and I've got a beginning and a middle and an end, but not much in between those things. And he just comes and says, well, that's a bunch of crap, you know? You're not a musician.

• 39:56Joe Weisenthal?

  You're not.

• 39:58Speaker 06

  You're not a musician.

• 40:00Joe Weisenthal?

  I know.

• 40:01Tracy Alloway?

  All right, Brad Jacobs, thank you so much for coming back on Odd Lots and walking us through the latest deal. Congratulations.

• 40:07Speaker 06

  Really a pleasure. You know, this is the only podcast I'm doing.

• 40:09Joe Weisenthal?

  Thank you.

• 40:10Speaker 06

  In the immediate aftermath.

• 40:10Joe Weisenthal?

  We're cutting this clip. We're cutting this clip and running that separately. Thank you so much, Brad.

• 40:15Speaker 06

  Thank you.

• 40:28Tracy Alloway?

  Joe, that was a really interesting conversation. We don't normally do episodes about specific transactions.

• 40:34Joe Weisenthal?

  No.

• 40:34Tracy Alloway?

  But I think this one was interesting, not just from a macro perspective, but just out of the broader M and A environment, as we've been discussing, kind of lackluster recently. So it was good to talk about a big deal that has actually happened.

• 40:49Joe Weisenthal?

  You know, it was interesting.

• 40:50Tracy Alloway?

  Hmm.

• 40:51Joe Weisenthal?

  You asked Brad about the state of the economy, and he was sort of cagey about it. But then, in his next question, he talked about the environment from November to now. He's like, oh, the economy's slowed. I think he gave a little hint there that he, there's, I mean, look, the market has slowed for sure. But a little hint about the state of the environment, maybe in that answer. But I really like talking to Brad. It is fun. You know what's interesting? Here's something really confusing. You know that phrase, deals are my art form. Other people paint beautifully on canvas.

• 41:24Tracy Alloway?

  No, no, I do not know that phrase.

• 41:26Joe Weisenthal?

  No, but is this something people actually say? No, so like, there's this quote, deals are my art form. Other people paint beautifully on canvas or write wonderful poetry. I like making deals, preferably big deals. That's how I get my kicks. I always thought it was a Trump quote, but then I searched it and apparently Ed Koch said it. And now I'm really confused. Anyway, I don't, I don't know. It's a great phrase, but you know, hearing Brad talk about the, and it's like, I'm still a musician. And it's like, no, your, your art form is deals. It sounds like he really likes, likes doing deals.

• 41:54Tracy Alloway?

  He likes deal making for sure. Well, the other thing I was thinking, you know, we were talking about price and that 40% premium that they're paying for Beacon. And I had that, you know, that scene from Succession in my mind.

• 42:07Joe Weisenthal?

  No, because I haven't seen Succession. I know, let's not talk about this. Go on.

• 42:11Tracy Alloway?

  Wait, wait, okay. So there's a scene where, you know, they're making a bid for another company and they just throw out this insane number. And the head of the media empire at that time, the sort of patriarch of the family says, congratulations on saying the bigger number. And so I always think about that when it comes down to pricing for M and A. You have to watch Succession. I can't believe it.

• 42:34Joe Weisenthal?

  No, no, that's not, that's not my thing. I really, I did really like it. You know what's interesting?

• 42:39Tracy Alloway?

  Wait, wait.

• 42:40Joe Weisenthal?

  No, can we talk about this another time?

• 42:41Tracy Alloway?

  Not media plus business.

• 42:44Joe Weisenthal?

  Let's talk about this another time. I did, I watched like four episodes and I was so bored. I was like, oh, it gets good at the eighth episode. I was like, I'm not giving that much of my life to get into a show if it doesn't. Anyway, you know what I think is really interesting is a few aspects of this deal. One, obviously that, and I didn't know this, that at least for a lot of roofing, that there is this very complete domestic supply chain. But also just this idea that as the housing stock grows, you create perpetual demand, even if the housing stock isn't really growing because roofs have to be replaced. And that's That that actually 80% of the business of roofing is non discretionary.

• 43:25Joe Weisenthal?

  I thought was pretty interesting, just thinking about like at any given time, most of the demand for roofing equipment is existing homes that need to upgrade or fix something.

• 43:35Tracy Alloway?

  No one gets a new roof for fun. And I know that from experience.

• 43:39Joe Weisenthal?

  Yeah.

• 43:39Tracy Alloway?

  All right.

• 43:40Joe Weisenthal?

  Except maybe Brad, I could see it.

• 43:42Tracy Alloway?

  Just to test.

• 43:44Joe Weisenthal?

  Or he gets a new roofing company for fun.

• 43:45Tracy Alloway?

  That's right. All right. Shall we leave it there?

• 43:47Joe Weisenthal?

  Let's leave it there.

• 43:48Tracy Alloway?

  This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

• 43:54Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow Brad Jacobs. You can check him out, I think, on LinkedIn. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashell Bennett at Dashbot, and Kale Brooks at Kale Brooks. For more Odd Lots content, go to Bloomberg.com/oddlots, where we have all of our episodes and a daily newsletter. And if you want to chat with fellow listeners 24/7 about topics, including things like residential construction, go to our Discord, discord.gg/oddlots.

• 44:24Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about big deals in the market, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.

• 45:16Speaker 01

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• 46:24Speaker 03

  She's been thinking about this sleepover all week, but I think about her food allergies all the time. Fortunately, her doctor prescribed Zolair, omalizumab. It's proven to significantly reduce allergic reactions if a food allergy accident happens.

• 46:37Joe Weisenthal?

  Zolair 150mg is a prescription medication used to treat food allergy in people one year of age and older to reduce allergic reactions due to accidental exposure to one or more foods. While taking Zolair, you should continue to avoid all foods to which you are allergic. Don't use if you are allergic to Zolair. Zolair may cause a severe, life-threatening allergic reaction called anaphylaxis. Tell your doctor if you ever had anaphylaxis. Get help right away if you have trouble breathing or if you have swelling of your throat or tongue. Zolair should not be used for the emergency treatment of allergic reactions, including anaphylaxis. Zolair is for maintenance use to reduce allergic reactions, including anaphylaxis, while avoiding food allergens. Serious side effects such as cancer, fever, muscle aches and rash, parasitic infection, or hardened circulation problems have been reported. Please see zolair.com for full prescribing information. Ask an allergist about Zolair. This is an advertisement for Zolair,

• 47:22Joe Weisenthal?

  paid for by Genentech and Novartis.