Brad Jacobs on His Big Bet on Building Insulation

He's done it again. On Sunday night, building supply company QXO announced that it would be acquiring TopBuild for $17 billion. TopBuild sells and installs insulation for both the residential and commercial markets. For Brad Jacobs, the CEO of QXO, this is just the latest in a lifetime of deals he's made. In fact, he's made over 500 deals in his life across numerous public companies that he's founded, most of which have XO somewhere in the ticker. Brad's companies all tend to be highly focused on the so-called "old economy" or real physical world, but of course, as we've seen with the datacenter boom, the old economy is still hot and crucial. So we talk about the logic behind this deal, how the insulation market works, and the general state of the building supply market right now. Subscribe to the Odd Lots NewsletterJoin the conversation: discord.gg/oddlotsSee omnystudio.com/listener for privacy information.

Speaker names marked ? are inferred from speaking time and the show’s known hosts — they are not voice-verified.

• 0:00Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next, about the time it takes to grab a coffee. So, search Barclays Brief wherever you get your podcasts.

• 0:26Speaker 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, but according to recruiters, advisors,

• 1:11Speaker 01

  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.

• 1:48Speaker 02

  For big business, AI opened up a world of promise, but that world of promise turned into a world of pain. Costs spiraling, data trapped, security and governance risks multiplying, and ROI out of reach. That's why enterprises turn to Boomi to connect data, apps, and AI, helping them operate securely, efficiently, and at scale. Boomi turns a world of AI pain into a world of AI gain. As Boomi says, "We got you." Head to boomi.com. That's B-O-O-M-I dot com.

• 2:23Speaker 03

  Bloomberg Audio Studios, podcasts, radio, news.

• 2:38Tracy Alloway?

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

• 2:42Joe Weisenthal?

  And I'm Joe Weisenthal.

• 2:44Tracy Alloway?

  Joe, we like talking about the old economy on this podcast, right? I don't even think, when people use that term old economy, I think it's kind of unfair.

• 2:51Joe Weisenthal?

  It's funny, I was literally about to respond and say that maybe like this whole old economy, new economy distinction, it's a little unfair. The old economy is still, still here. It's not, you know, it's not, it's not generative AI, but it's arguably, maybe it's even more important. The things that we call the old economy, you know, you couldn't have the new economy without, without cooling and heating.

• 3:16Tracy Alloway?

  This is exactly what I was gonna say, because like the old economy and the actual business of making things and moving things, heating and cooling, is very much enmeshed with the new economy, which is all about generative AI. And in order to have generative AI, you need data centers, right? And if there's one thing we know about data centers, it's that they consume vast amounts of both building material and electricity.

• 3:40Joe Weisenthal?

  And yeah, heating and cooling. So, yes, you're absolutely right. We will, we will no longer use the slur old economy. We will find some other, other word. But yes, we like talking about industries in which physical things get built and then sold at a higher profit, at a higher price from which they were built from and how these, how these things actually work.

• 4:03Tracy Alloway?

  Yes, indeed. So, we are going to be talking about that today. We also like occasionally talking about deals. And it's not every day that we get to talk about a deal that has literally just been announced and is, I think, you know, one of the biggest deals that we've actually seen recently.

• 4:18Joe Weisenthal?

  That's right. It's a deal talk. Let's do it.

• 4:21Tracy Alloway?

  Okay, so we do in fact have the perfect guest. We're going to be speaking with Brad Jacobs. He's been on the show before and he is of course the CEO and founder of QXO, which has just announced a huge deal to buy a company called TopBuild in the insulation space. They're paying 17 billion and at the end of this acquisition, they expect to be the second largest publicly traded building products distributor in North America. So truly a melting of mergers and again, the, the old slash new economy. Brad, welcome back to All Thoughts. Thanks so much for coming on.

• 4:58Speaker 05

  Oh, my pleasure. Great to be here.

• 5:00Tracy Alloway?

  Congrats on the deal. The first question I have to ask is, is it even accurate to call this an acquisition right now? Because if you're paying 17 billion for TopBuild, looking at QXO's market cap, you guys are at like 17 billion as well. This looks like a merger. This is so big. This basically looks like a merger.

• 5:18Speaker 05

  Yeah, a merger. I'll go with merger. Merger's fine. We're putting together two great companies and forming an even greater one.

• 5:25Joe Weisenthal?

  You know what's funny? I hadn't heard of TopBuild up until, you know, this morning or sorry, yesterday, when the news came out that you're going to buy it. You know what I was thinking about? Like, America's incredible. Like this company, so it's stock now with the premium that's baked in today, trading at 484. This was a $43 stock as recently as 2018. America's incredible. Like, these companies that sort of fly under most people's radars can just do, you don't have to be in the Nvidia's of the world to make a lot of money.

• 5:54Speaker 05

  Well, I agree with that. You have to have a service or a product that there's demand for. And you've got to give a great customer experience. And if you have those two things, you'll make a lot of money.

• 6:05Tracy Alloway?

  All right. So walk us through the rationale for doing this because again, like a huge deal. And it seems to have caught a few people off guard. They were expecting you to maybe buy, you know, some smaller companies, keep the roll up strategy going. But again, this one is very large.

• 6:22Speaker 05

  Oh, yeah. So. The acquisition of Beacon, following the acquisition of Kodiak, which is followed now by the acquisition of TopBuild, takes us from 11 months ago, where we had no building products revenue, let alone EBITDA, to the second largest publicly traded building products distributor in North America, with more than $18 billion in combined company revenue and more than $2 billion of combined adjusted EBITDA. It's a big deal. It's a big deal in the industry. It's a big deal in the market as a whole. It's very accretive to our earnings, meaningfully accretive to our earnings. And when you look at the multiples, that's reasonable multiples.

• 7:04Speaker 05

  We're paying 14.9 times 2025 EBITDA pre-synergies and about 11.8 times EBITDA post-synergies. And there's tons of synergies we can get. We're targeting $300 million or so of synergies over the next five years.

• 7:22Joe Weisenthal?

  Just to zoom out for a little bit, regular listeners, of course, know who Brad is. We've had him on the show several times. But just in case you don't, he is a serial entrepreneur. If there's ever a company and their ticker has XO in the handle, it almost certainly was founded by Brad.

• 7:40Speaker 05

  One exception.

• 7:41Joe Weisenthal?

  Which one?

• 7:41Speaker 05

  ExxonMobil.

• 7:45Joe Weisenthal?

  You didn't found that one?

• 7:46Speaker 05

  No, no, I wish I had.

• 7:48Joe Weisenthal?

  One that got away. But it's always these, again, I hate words like real economy and old economy, but we can see physical economy. And it's like warehouses and trucking and freight brokerage and construction equipment rental and garbage stuff, like anything real and physical, that's what Brad's into. He's founded numerous companies. He also wrote a book, came out in 2024, How to Make a Few Billion Dollars. And the reason I still have this job today is because I haven't gotten around to reading the book yet. Had I gotten around to reading the book yet, I'd probably be a billionaire by now and I would be doing something different. But I'll get around to doing that eventually. One thing that's interesting, though, to me, just learning about TopBuild today, in addition to seeing their stock, they had also been a serial acquirer.

• 8:33Joe Weisenthal?

  And in fact, it said, like in one of their recent presentations, this has been one of their main strategies. So why don't you like talk about like, who is this company, TopBuild? What do they do? Tell us a little bit about the history and the footprint of this company that you're buying.

• 8:47Speaker 05

  TopBuild is the largest Installer and distributor of insulation.

• 8:52Joe Weisenthal?

  Yeah.

• 8:53Speaker 05

  And as you were just saying, everybody needs insulation. Every, every, every house needs insulation in the walls. Every office building needs insulation everywhere. It's, you know, it's a needed product and it's, it's not going anywhere. It's not going to be disrupted by AI or LLMs. It's just not going to go away.

• 9:10Joe Weisenthal?

  Yeah.

• 9:10Speaker 05

  So when we complete the merger, we'll be number one in insulation. We'll be the second biggest in roofing.

• 9:20Speaker 05

  We'll be number one in waterproofing and we'll hold number one or number two positions in certain geographies within lumber and building materials. So we'll have a huge addressable market, several hundred billion dollars.

• 9:32Tracy Alloway?

  So I take the point that everyone needs insulation. This is definitely true, but we alluded to this in the intro. Data centers in particular need insulation. How much of this deal is the expectation that you're going to be getting a lot of business from the data center build out as well?

• 9:49Speaker 05

  Oh, we will get a lot of business from data centers, but not just on the insulation. Data centers need roofs too. Data, data centers need waterproofing, very much so. Data centers often need lumber related products. So, so data centers are big consumers of building products. Now, TopBuild itself has single digit percentage exposure to data centers, but it's very fast growing.

• 10:13Joe Weisenthal?

  Wait, sorry, say that, how much exposure?

• 10:15Speaker 05

  Single digit percentage of the revenue.

• 10:17Joe Weisenthal?

  Got it, got it.

• 10:18Speaker 05

  But it, but it, when there's a growth.

• 10:19Joe Weisenthal?

  Yeah.

• 10:19Speaker 05

  It's growing very, very fast.

• 10:20Joe Weisenthal?

  Okay, so when we think about the insulation market in general, how much is it residential? How much is it commercial? And is there a lot of overlap or do companies tend to specialize in one or the other?

• 10:33Speaker 05

  It's fairly evenly split. They have a little more residential than commercial, but they have both.

• 10:38Joe Weisenthal?

  Okay.

• 10:38Speaker 05

  They have both, and we have that as well, by the way, in our, the company, the two companies we bought before this, Beacon and Kodiak, we have residential customers, we have commercial customers, we have industrial customers, we have municipal customers. Everybody needs building products. If there's a building, it's made of building products.

• 10:55Joe Weisenthal?

  And just to be clear on the nature of the business, they do installation, like within the, the insulation supply chain, where do they sit exactly? Is it, do they manufacture it or is it just distribution and installation? Like what do they do?

• 11:08Speaker 05

  They don't manufacture.

• 11:09Joe Weisenthal?

  Okay.

• 11:10Speaker 05

  It, it, they buy it. And then they either resell it at a higher price to a contractor, or they actually install it. They sell it and install it and to various customers.

• 11:22Tracy Alloway?

  Okay, well, now I have a dumb question, but is there a quality differential when it comes to insulation? Like, is there a particular type of insulation that a data center would need versus your run-of-the-mill house?

• 11:35Speaker 05

  There's not too many different types of insulation, but there are different types. And the big manufacturers are ones like Owens Corning, or John Mansville, or Canowth is another big one. So, you know, big companies and very high-quality stuff. So insulation has been around for a long time, but technology makes it better and better every decade.

• 11:54Joe Weisenthal?

  Where's it made, insulation?

• 11:56Speaker 05

  It's mostly made in the United States.

• 11:58Joe Weisenthal?

  Is it?

• 11:58Speaker 05

  Yeah.

• 11:58Joe Weisenthal?

  This seems to be, I was surprised. I remember the last time we talked to you about like roofing, and you mentioned how much shingle is still made in the US. Talk to us about like, why is that? Why is this a particular type of good that is still largely? What are the economics of it such that it still makes sense to manufacture it in the United States?

• 12:17Speaker 05

  It's more about regulations.

• 12:19Joe Weisenthal?

  Okay.

• 12:19Speaker 05

  So the types of building products, the regulations, the codes are different country to country. So insulation in Europe is not quite the same as insulation here. Roofing products in Europe, not quite the same as it is over here. So waterproofing, same thing. So slightly different regs, and that makes it better to manufacture closer to where it's being used.

• 12:40Tracy Alloway?

  Hmm. So how did TopBuild actually get on your radar? Did you initially approach them? Did they approach you?

• 12:48Speaker 05

  We approached them. Absolutely. We approached them first, yeah.

• 12:51Tracy Alloway?

  Okay, so now I'm very curious, because I know you have a lot of experience in M&A, and you know, a lot of people would describe your business as basically a roll-up for building materials. But I also know from reading your book. And by the way, Joe, I'm not yet a billionaire, but I did read the book. You have a very, a very specialized process when you target a company to acquire them, including having a former CIA intelligence officer, one of the guys who I think like worked with lie.

• 13:24Speaker 05

  He was on your podcast.

• 13:25Joe Weisenthal?

  Yeah, yeah.

• 13:26Tracy Alloway?

  Yes, yes. So did he, did he interview all the CEOs?

• 13:30Speaker 05

  Yeah.

• 13:30Tracy Alloway?

  They all went through background checks and that sort of thing?

• 13:32Speaker 05

  So, so we do background checks, but we spent two days in our lawyer's offices here in New York and about 15 members of the senior management team of Top Bill came up, including the CEO and CFO. And yeah, we interviewed each one for like an hour and a half and got to know them and it checked out. Everything they said was true.

• 13:51Joe Weisenthal?

  I love that. Interviewed two guys for an hour and a half. It's like, here's $17 billion. Sounds good. Now, there's a, I'm sure it's a little more complicated than that. What else goes in in the due diligence process? Do you go around and talk to customers?

• 14:02Speaker 05

  Oh, yeah.

• 14:03Joe Weisenthal?

  So talk to us about that.

• 14:04Speaker 05

  Well, we have a lot of the same customers.

• 14:06Joe Weisenthal?

  Okay.

• 14:06Speaker 05

  We have a lot of same vendors.

• 14:07Joe Weisenthal?

  Okay.

• 14:07Speaker 05

  Big, big overlap. So Top Bill is a very well-known company. It's the number one company in its field. So it's pretty easy to check them out. So we, we knew what we were getting before we did those interviews over two days, but still you want to talk to the people. You want to find out where are the skeletons and what are the risks? And what are the good things? And where's the opportunities? And where's the upside? And what are some things you can bring to the table, particularly in terms of technology that could turbocharge the growth of the company? So those in-person meetings are very important. It's not the only part of due diligence.

• 14:38Joe Weisenthal?

  Sure.

• 14:38Speaker 05

  Do a lot of stuff online. You do a lot of stuff with third-party channel checks, but those in-person meetings with the management team are absolutely crucial. I would never buy a company, any company, without doing management interviews. That's the most important part of due diligence.

• 14:54Tracy Alloway?

  It's funny. I was hanging out with some people over the weekend and I was hearing about some deals that they were doing in the AI space, including a pretty large deal that apparently they completed in an afternoon. And you can imagine what the due diligence process is on a deal that's completed in a single afternoon.

• 15:13Speaker 05

  I don't know how to do that yet. That, that, that's over my capabilities, but it doesn't, it doesn't take a long time. We're surgical and not overly intrusive in the due diligence, but afternoon is a little tight.

• 15:40Joe Weisenthal?

  There are some market stories where you want every detail. Tracy and I have made quite a few podcasts on that basis, but sometimes you've only got 10 minutes and need to know what's moving markets and why. That's the Barclays Brief Podcast. Every week, experts from Barclays Markets and research get you up to speed on what matters and what to watch next. About the time it takes to grab a coffee, so search Barclays Brief wherever you get your podcasts.

• 16:06Speaker 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

• 16:48Speaker 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 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.

• 17:29Tracy Alloway?

  So what made you comfortable with the premium? Because again, 23% on the existing share price of TopBuild. That's a pretty, you know, that's a pretty nice amount of money.

• 17:40Speaker 05

  It's a fair price. It's not a terribly high price, it's not terribly low price. When you're looking at multiples of EBITDA, it's 14.9 times 2025 EBITDA, pre-synergies, and about 11.8 times EBITDA post-synergies, the expected synergies. So, you know, it's reasonably priced. It's a lower multiple than we trade at, which is very important because that's where you get the accretion, the accretion to earnings per share. This is going to be a massively accretive transaction for us.

• 18:10Joe Weisenthal?

  Talk to us about setting aside, like, setting aside this acquisition, which we'll come back to. How does business feel over the last year? You know, just general economic conditions in the building materials, distribution world? What's been the last year like?

• 18:25Speaker 05

  Super soft, super, super soft. Now, super soft because demand in general in building and construction is soft, is weak, and we're not immune to that. But we've mostly been in roofing up until recently.

• 18:37Joe Weisenthal?

  Yeah, right.

• 18:38Speaker 05

  Now, roofing is a special animal because it's extremely affected by weather, meaning bad weather. You want to have, bad weather is good weather for roofing. So you want to have, you want to have sleet and a lot of hailstorms and hurricanes and tornadoes. And I got to tell you, there's a lot of cognitive dissonance about that because all my life, I've watched television, you see a hurricane, like normal people, unless you're a sociopath, you feel bad. You feel, oh, wow, it's too bad that these people are getting their...

• 19:07Joe Weisenthal?

  Wait, have you become a sociopath?

• 19:09Speaker 05

  No, no, no, no, definitely not becoming a sociopath.

• 19:11Joe Weisenthal?

  What, no hell? When's it gonna hell?

• 19:14Speaker 05

  No, but my point is this, if a normal person watches television and sees a people's houses getting, roofs being blown off, usually you feel bad about that. You feel compassionate, you feel, oh, wow, it's too bad for them.

• 19:25Joe Weisenthal?

  Yeah.

• 19:26Speaker 05

  So there's a dissonance here because that's really good for the roofing business. So one half of your brain is still a human and had compassion and feeling bad for this, and the other side, you're, yeah! Great, I got a storm, got a hailstorm, isn't that fantastic? These people's roofs all go flying off, we're gonna get more business. So the the good or bad news, depending on your perspective, is in 2025, there really weren't any big storms, there weren't any name storms, big hurricanes, tornadoes.

• 19:51Joe Weisenthal?

  Right.

• 19:51Speaker 05

  So that was bad. And compounding on that, in the first quarter here, you had the bad kind of bad weather, which is snow and other bad weather that just slowed everything down, just stopped business, but didn't create any demand from roofs.

• 20:06Joe Weisenthal?

  Roof damage.

• 20:07Speaker 05

  Exactly. So so the external conditions haven't been great. Now, that said, I don't care, because I'm not building a business for one year or two years or three years, like I did in my previous companies. I'm building a strong, durable, iconic company that's going to be around for decades. And that's what I think. We're always thinking about long term. We're thinking five, 10 years. We're not thinking about a quarter or the year. If we have a choice on a decision for capital allocation or M and A or investments, we barely think about what how's it going to affect this quarter this year. It's really how's it going to affect the long term.

• 20:44Tracy Alloway?

  Were you impacted by the tariffs at all? Did that complicate the existing business?

• 20:49Speaker 05

  Not too much, because in roofing, which is what we've been up until Kodiak and our top build, almost all of it is is manufactured in the United States, sold in the United States, or manufactured in Canada or sold in Canada. And we really don't have business overseas. So the tariffs didn't really affect us. Now, it might have affected demand destruction overall. It might have affected how much construction was happening. But directly, we were not clobbered by the tariffs. The weather clobbered us a lot more than the tariffs.

• 21:21Joe Weisenthal?

  What is the main commodity input for insulation?

• 21:25Speaker 05

  Oh, it's chemical. It's chemically created and it's refined in a manufacturer with a lot of people looking like chemists.

• 21:34Joe Weisenthal?

  So like, is it petrochemical? Like, if like, oil prices were to surge, would that be a sort of like margin crimping factor for insulation prices?

• 21:44Speaker 05

  Well, I think we're better off with oil prices lower

• 21:47Joe Weisenthal?

  Yeah.

• 21:48Speaker 05

  for demand, not so much for the cost of the goods. But lower oil prices, there's more confidence and more demand. But the real factor for building products is mortgage rates. So mortgage rates, when they were seven and a half percent was was really bad.

• 22:02Joe Weisenthal?

  Yeah.

• 22:02Speaker 05

  Because people had three percent mortgages or three and a quarter percent mortgages. And people just have a problem paying off a three percent mortgage and taking out a seven percent mortgage. They're now down a bit, six and a half percent. But they got to come down more. So when when the Iran war finally ends, and it'll end someday, and interest rates come down, which they will under this administration, it's pretty good odds that mortgage rates will come down and business will start booming.

• 22:28Tracy Alloway?

  Yeah, this is what I wanted to ask, which is, I guess, financing availability at the moment. Because clearly, we are in the midst of this Iran situation, and we have seen some very volatile markets out there. We've seen traders start to ratchet down, I guess, their expectations for a rate cut later this year. What's financing been like for you at QXO?

• 22:50Speaker 05

  We have no problem getting access to capital. That's not been an issue for us. We've raised, since I started the company almost a couple of years ago, we've raised something like $15 billion and fairly easily. On this transaction here, in addition to that, we've got $17 billion. Now, part of that, roughly about 55% of it is going to be in the form of stock. But the other is cash. And we got debt commitments from Morgan Stanley and from Wells Fargo and from Barclays. And we pulled that all together in about a week.

• 23:24Joe Weisenthal?

  Is synergies, when you talk about the future cost savings, is that a euphemism for layoffs?

• 23:30Speaker 05

  No, just the opposite.

• 23:31Joe Weisenthal?

  Okay.

• 23:31Speaker 05

  It's to grow the business, is to figure out ways that you can cross-sell customers. A contractor who is selling roofing, is buying roofing and putting that into their construction. Pretty good chance they're going to want insulation in what they're building too. So we also sell windows and doors, for example, and all of our customers have some issue, some exposure to windows and doors. And we'll be number one in insulation, number two in roofing, number one in waterproofing, and number one or number two in the key geographies served within lumber building materials. There's a lot of cross-selling between insulation, roofing, waterproofing, and lumber.

• 24:12Tracy Alloway?

  Wait, say more about that because, you know, we hear from executives all the time when they talk about synergies in kind of general terms. But what exactly is, I guess, the low-hanging fruit in this particular deal? Like, what is it that you're able to do from day one versus what you're able to do in, like, a year or two?

• 24:32Speaker 05

  Well, the first thing that we do when we go in to buy a company, whether it's Top Build or anybody else, is we meet with as many people as we can, and we ask them to just step back, get out of their normal comfort zone, and think about what would be the perfect circumstances and tools and techniques and repositioning of the company to grow even faster. Where's their, where are their pain points? Where are things that are holding them back? And we collaboratively put together a business plan. Now, I already know, like with every other acquisition we've done, ever, technology's going to be the first thing. Technology today slows people down in the market. They've got to get the latest technology, the greatest warehouse management systems,

• 25:15Speaker 05

  which we'll bring to the table, the greatest TMS, transportation management systems, the greatest ERP, which is also using a CRM that's AI-generated to empower the sales force, to get productivity up. Technology is, is the number one enabler of synergies. But there's going to be so many synergies here. The cross-selling is a big one. There are some cost savings. When you're a bigger player, we're going to be the second biggest publicly traded building products distributor, we will get, because we deserve, a better price from the manufacturers. I mean, bigger customers get Bigger discounts, bigger rebates than the smaller customers. So a building products distributor, like any distributor, makes money by buying products

• 25:57Speaker 05

  as cheap as possible and then selling them at a reasonable price that's a markup from what you're buying. These are the two main things, you're buying and you're selling. Now, in the meanwhile, under that, you have to manage your costs, make sure your costs are efficient and lean and not wasteful and not inefficient. We can do that too. But that's not really where you make the money. You don't make the money on slashing costs. That's what private equity guys do. That's not what I do. What I do is I invest in the business, I invest in the people, I invest in their learning and development, I invest in their training, I invest in their careers. We tie the compensation to results. We figure out what are the right KPIs, the key performance indicators, what are the right metrics that are, that mark success in this business?

• 26:38Speaker 05

  And then we tie the compensation to that and let people, out of self-interest, do great for the company and create organic revenue growth on the top side and then margin expansion on the bottom side.

• 26:49Joe Weisenthal?

  I love a business that's just buying something and finding an opportunity, you know, buying something, assembling it, making it nice and then selling it for more. It's old fashioned. It's honest. I respect it a lot. I'm glad that you mentioned the alphabet soup of different types of enterprise software that a business has. One of the biggest themes, as you know, in the market this year, really maybe in the last six months, but definitely in the last year, is this idea that the relationship between businesses and their software vendors is going to change and the reason for this is AI. And maybe, you know, maybe some businesses that didn't have that expertise at house like, maybe we'll build this solution on our own rather than hire, et cetera.

• 27:31Joe Weisenthal?

  Setting aside this deal right now, has your, in the last year, has your relationship with software vendors, does it feel like the leverage is changing thanks to AI, whereas maybe you at the negotiating table, when you're re-upping negotiation for seats, et cetera, where you have a little bit more, you could cancel deals or get better pricing? Talk to us about what's going on.

• 27:52Speaker 05

  Not really. I mean, a lot, a lot of our technology is homegrown. We have a lot of people we've hired from Microsoft. And from other, other big.

• 28:01Joe Weisenthal?

  Sure, but you're not like building your own like payroll software, right?

• 28:06Speaker 05

  Well, we still, we still outsource.

• 28:08Joe Weisenthal?

  That's what I'm saying, like, there's a lot of anxiety in the market that all these legacy companies that do something simple like payroll, oh, look, you've seen their share prices. I don't need to show them to you.

• 28:17Speaker 05

  Long term, Joe, that's true. Long term, that's true.

• 28:20Joe Weisenthal?

  Okay.

• 28:20Speaker 05

  But long term, that's true for pretty much every job and every, every industry and every company is AI and, and robotics and automation is going to disrupt quite a number of jobs. But having said that, the productivity of the economy is going to be so much greater that we can afford to have more free time and still enjoy a nice lifestyle. So I'm not worried about that.

• 28:42Joe Weisenthal?

  No, not worried, but I do have an opportunity. What I'm saying is like, are you exploit, like, do you have any opportunities to like, are you a beneficiary of these tools?

• 28:50Speaker 05

  Oh, yeah.

• 28:50Joe Weisenthal?

  Like, talk about, yeah.

• 28:52Speaker 05

  Absolutely. So, so I've been a CEO since 1979. It's the only job, the only job I've ever had. I've never been more productive by a long shot than I am right now. Reason being, we have AI taking notes of all the important meetings around the company.

• 29:08Joe Weisenthal?

  Okay.

• 29:09Speaker 05

  So at the end of the day, I can get a dozen readouts of AI generated summaries of everything that's going on in the company, stuff that in the old days before we had the AI note taking, either it wouldn't reach to me or it would reach, it wouldn't reach me or it would take, you know, two or three months before it got to me. So, so as a CEO now, you know what's going on in the company, all over the company, right away in real time. And when you have longer meetings, you can, the AI will do sentiment analysis, the AI will look at trends, we can do customer surveys, employee surveys using AI that so powerful now. I mean, you can get real good analysis from it. It's hugely powerful. You can see where this is going. AI is going to make corporate America far more efficient than it is right now.

• 29:53Speaker 05

  Everything that's measurable will be measured, analyzed, and then suggesting how to improve it in real time. It's a very exciting time to be alive and be in the corporate world.

• 30:21Speaker 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

• 31:02Speaker 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 ads that candidates "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.

• 31:43Speaker 06

  If you listen to financial news, you know a lot of time is spent thinking about what's next, the next opportunity, the next investment, the next move. But sometimes what matters most is being ready for what you never saw coming. A storm damages a second home. A pipe bursts above a collection you spent decades building. An unexpected loss puts a growing business on pause. Those are the days no one sees coming. But for more than 75 years, Cincinnati Insurance has been ready when they do. With deep expertise, coverage for businesses, homes, valuables, and more, Cincinnati Insurance works with independent agents who take the time to understand what matters to you. Together, they help protect more than what you own. They help protect what you're building toward.

• 32:28Speaker 06

  And when a bad day does come, Cincinnati Insurance has real people there to help make things right. Because planning for the future isn't only about knowing what's next, it's about making sure you're ready for what you can't predict. Let Cincinnati Insurance make your bad day better. Find an independent agent at C I N F I N dot com.

• 32:48Tracy Alloway?

  Just going back to the QXO business. So I know I keep saying this is a very big deal, and it is, and it immediately vaunts you to, as we said, the second largest publicly traded building products distributor in North America. As you get bigger and as you make more of these acquisitions, you know, fairly quickly, you've done like three or four now in a little over a year, I think, or maybe a little less than a year. Do you worry about antitrust at all?

• 33:16Speaker 05

  Well, we're not at a point where our market share is so huge that it would have any effect on raising prices to the customer. So, no, I don't worry about that right now.

• 33:25Tracy Alloway?

  All right. So on that note, what does the universe of potential targets look like to you right now? And should we expect that your next deal is going to be quite as large?

• 33:36Speaker 05

  Well, we have a big pipeline, and we're always talking to many, many acquisitions at the same time. A big mistake a lot of rollups do, or even corporate acquires, is they kind of dabble in M and A. They don't have like a scientific, organized process. So they work on one deal, they fall in love with the deal, and they overpay. It's like the biggest crime, the biggest mistake you can make as an acquirer is to overpay. People say, oh, well, don't worry about it. You'll forget about the purchase price the next day. Well, your balance sheet never, ever forgets the purchase price. That's money that you've wired out of your account into someone else's account. It's not coming back. So you got to watch the purchase price quite closely.

• 34:16Joe Weisenthal?

  What's your advice? You know, like, one of the things that I'm aware of... Over the last 10, 15 years is the rise of like, I think they're called like search funds or something. You get like some guy who's like an MBA, maybe a Wharton. They don't know what they want to do. They raise some money for their friends and they're like, we're gonna like go buy this local like pool supply company or whatever HVAC company. And we're gonna like six sigma it up and then we're gonna make some money, et cetera. I think you're probably a god to these people because you have the art of buying companies down as a practice. Where do you see them go wrong typically? What would be your advice to these types who think, you know what, I'm gonna buy an old fashioned business and make it run great. What do you, where do you see people go wrong in this?

• 34:59Speaker 05

  Most of them go wrong. Most of them go wrong because they're really not operators. They're really just promoters. They're financial guys and that's fine, but they don't integrate and optimize the businesses. Now, they can still make money on the spread. In other words, you see some of these smaller rollups, they buy a bunch of companies that whether veterinarians or car washes or whatever, and they buy them at single digit multiples. And then suddenly they're a hundred or $200 million of EBITDA and they say, wow, I'm a big company. I should get a double digit multiple. And oftentimes that works. That's not how we make money. We make money on, yes, buying companies at a lower multiple than we raised capital at, but then integrating them, optimizing them, improving them, making yourself more valuable to the

• 35:43Speaker 05

  customer, making yourself a real exciting place to work for the employees, making a real good long-term business plan that creates value for everyone in the ecosystem. That's not what these smaller rollups do. These smaller rollups are really simply playing the arbitrage between what they buy on small companies and then aggregating them to get a higher multiple.

• 36:03Joe Weisenthal?

  You know, I asked you if the synergies were euphemism for layoffs and you quickly shot that down. You know, one of the things that Warren Buffett said from time to time is like, people who like family owned businesses, some of these smaller businesses, they like selling to Warren Buffett. They felt like, okay, this company that I've worked with and built for a long time, it's going to be in good hands. Maybe it'll give Warren Buffett a slightly better price than the other guy who came knocking. Do you feel like from your perspective, it's important that the would be seller, they like you, that they feel that this thing that they worked to build is going to be in good hands? And is that part of your long-term strategy?

• 36:39Speaker 05

  Yeah.

• 36:40Joe Weisenthal?

  Does that give you edge?

• 36:40Speaker 05

  I do. When you're selling a company, it's kind of an emotional thing. I mean, you're not going to sell a company for like 20% less just because you like the guy. But you don't necessarily go with the highest bidder every time. Now, it depends who you are. If you're a private equity owned, yeah, you probably will go with the highest bidder because you're going away and you really don't care. If you're a privately owned company by a family, you care very much about who you sell the company to. Because it's your legacy, then maybe there's relatives, there's local communities. It's a big deal. They want to make sure that you're going to be good steward for something they've built up over 10, 20, sometimes 30 years. So yeah, it does make a big difference.

• 37:17Tracy Alloway?

  Yeah, I'm going to put you on the spot now, but when you were negotiating on the top bill deal, what was like the biggest sticking point that you had to haggle out? What was the biggest point of contention?

• 37:28Speaker 05

  Well, it's always price because the buyer wants the lowest possible price and the seller wants the highest possible price. But we found a compromise. We found something in the middle that was fair, both for them and for us. That was really the main sticking point. The other stuff we saw eye to eye, they're very similar cultures in a lot of different ways. They're good operators, we're good operators. They've done a lot of M and A, they've done a few dozen deals that built up the company. We're big in M and A, you know, as you know, I've done, my teams and I have done over 500 acquisitions. So there's a lot of stuff in common that we had a lot of mutual affinity and respect over.

• 38:02Joe Weisenthal?

  By the way, I know this is no longer a thing anymore, but I'm just looking at some of the other companies in the XO family. XPO, that stock is on an absolute tear. And I've been seeing like trucking is like kind of back, like trucking is hot these days. Can you talk a little bit about what's going on in freight? And obviously, even though it's like your main focus these days, I'm sure your business touches freight every single day. Why is freight so hot again?

• 38:29Speaker 05

  Well, freight isn't so hot across the board.

• 38:31Joe Weisenthal?

  Okay.

• 38:32Speaker 05

  Some companies are still, you know, not, not doing so well in that. Now, XPO, under Mario, under Mario Horex's leadership, is doing fantastic. I attribute that mainly to Mario and the team. The execution of the business plan has been fantastic, just laser-like surgical, getting the damages down, getting the on-time up.

• 38:51Speaker 05

  Improving the customer experience. It's just done amazing job at it. It's just executed very, very, very, very well on that. And that's why the stock has performed so well. But it's management matters in any company, in any industry, management matters a lot. You can have a strong management team who understands how you make money, has the nose for money, has the analytical capabilities of knowing what's important and what's not important, treats their employees right, treats their customers right, treats their vendors right, and they'll make a lot of money. And you'll have the same exact business across the street with not so sharp management. They don't treat their customers right. They don't treat their employees right. They don't treat their vendors right. And boom, this company doesn't do so well. So management matters, matters a real lot.

• 39:35Tracy Alloway?

  But again, I know you're not, you know, on a day to day basis with XPO now, but do you get the sense that the trucking cycle has turned?

• 39:43Joe Weisenthal?

  JB Hunt's at an all time high, too.

• 39:45Tracy Alloway?

  Yeah, a meaningful uptick in freight.

• 39:48Speaker 05

  There are several important gurus, analysts in the industry, experts in trucking, who have called a turn in the last couple of months. We'll see, you know, a couple of months doesn't make a trend yet. But at the time, it has, looks like it's inflected. It looks like there's more goods moving, there's more freight moving, industrial America's starting to get a little bit better. There's more pallets on the road. It looks like trucking's gotten better. But it's early days still.

• 40:13Joe Weisenthal?

  I just have one last question. I guess it's basically about the business environment. It's so obviously, interest rates are going to be a huge factor out of your control, though, etc. So what can you do about it, whether out of your control? Oil prices is going to be a factor, or energy prices is going to be a factor in any sort of real goods space, another thing that's out of your control. But like, here's the weird thing, and I think a lot of people have like, this is the hard thing that a lot of people have a hard time reconciling, which is that like, the last couple of years, maybe the last several years, last couple of years, they felt. Pretty chaotic. There's a war going on right now. We had this huge trade shock last year, et cetera. Some of the tariffs got watered down a little bit, but it was

• 40:57Joe Weisenthal?

  still a high level of uncertainty. And, you know, consumer sentiment's pretty negative, et cetera. And even business sentiment, when I read the regional surveys, not that great. And yet, by and large, corporate America seems to be doing well and making a ton of money. And you wouldn't necessarily know, especially if you look at the stock market, that there is all this uncertainty going on. Do you feel a relationship between like, the chaos that you read about in the news and the choices that businesses make on a day to day to either invest or not?

• 41:28Speaker 05

  Of course. So, so all the things you mentioned, energy prices, interest rates, et cetera, that affects business. So in terms of capital allocation, that really matters. Now, you can always make money if you've got a smart management team. In every part of the cycle, the top, the bottom, the middle, there's always a play. There's always a way to make money. Now, it's different in different parts of the cycle. When things are depressed, you can buy back your stock, you can do M&A. When multiples are really high, you can make a dividend and use stock for stock deals with companies. There's different plays at different parts of the cycle, but people who have the nose for money will be able to figure out how to make a buck in any part of the cycle.

• 42:07Joe Weisenthal?

  I gotta read your book.

• 42:09Tracy Alloway?

  All right. Brad, we're gonna leave it there, but thank you so much for coming back on All Thoughts to explain the latest deal. Really appreciate it. Oh, wait, I should ask before we let you go. Any hints on the next target? You have roofing, you have waterproofing, you have insulation. What's next?

• 42:25Speaker 05

  Tracy, we don't look at just one thing at a time. That's what we, that's our MO in terms of M&A, is look at, cast a wide net, talk to lots of different acquisition candidates at the same time, move them all forward ahead, like a funnel, and see who gets the finish line. That way, you're relaxed about it. You don't have a gun to your head about a specific deal. So it's not like I'm being coy and not telling you the next deal. I don't know. We're looking at lots of different things. We'll see when and which company the stars line up for.

• 42:56Tracy Alloway?

  All right. Well, I can tell you in the Northeast, a lot of people are looking at wood burmers at the moment because the cost of heating oil has gone up quite a bit. So maybe, maybe there's something there.

• 43:04Speaker 05

  There you go.

• 43:05Tracy Alloway?

  I'm saying this out of my own self-interest. Okay. Brad Jacobs, thank you so much for coming back on Odd Lots.

• 43:11Speaker 05

  Pleasure.

• 43:24Tracy Alloway?

  Joe, did I tell you last year, a big XPO truck got stuck in our driveway?

• 43:30Joe Weisenthal?

  You should have asked Brad about that.

• 43:32Tracy Alloway?

  Well, he's not like at the company anymore.

• 43:35Joe Weisenthal?

  It's not his responsibility to.

• 43:36Tracy Alloway?

  But I did, I did think it was pretty funny. I resisted the urge to call him and send a photo of this giant truck like stuck in the mud, but I felt bad for the driver.

• 43:45Joe Weisenthal?

  Does your place in Connecticut need insulation?

• 43:48Tracy Alloway?

  Yes, it does, actually. So I'm a potential customer and I'll be watching what happens with pricing after all these synergies very closely.

• 43:56Joe Weisenthal?

  Yes.

• 43:57Tracy Alloway?

  But always interesting having Brad on. And I do think he approaches, he seems to approach M and A a little bit differently to a lot of other people.

• 44:06Joe Weisenthal?

  Well, it's interesting to think about like, I, one thing I really have come to appreciate talking with him is the degree to which like, he's, he mentioned he's done over 500 deals. So it's like, what is he, what are you really good at at your company? For him, the thing that he really is into is deal, is buying other companies, right? Like you get the impression that there are like companies where it's like, okay, the main thing that we do is we sell roofing materials and from time to time, we might make an acquisition. But it's also pretty clear that from his perspective, like the acquisition process is part of the sort of the core competency of any business that he actually runs, which I find to be pretty interesting.

• 44:48Tracy Alloway?

  Yeah, absolutely. And the other thing that that was interesting about that conversation is that AI build out.

• 44:53Joe Weisenthal?

  Yeah, yeah.

• 44:54Tracy Alloway?

  And the idea that like, okay, at the moment, data centers might be, I think you said, single percentage of top builds business, but growing very quickly. And so you could see the potential there.

• 45:06Joe Weisenthal?

  And also, like, the idea, we just talked about it a little bit, but I've never been a CEO of a really big company, but I've managed at times smaller teams within a company. And like, one of the trickiest things is like, having like, true visibility into the operation, you know, etc. And I know, you know, and so like, thinking about like, AI is like, okay, the CEO can see everything to some extent summarized, structured in some way in a, at a level that was pretty, that's different. It'd be interesting to talk more with someone just about how being a CEO, having line of sight into your own business is changing in the world of like, AI note taking and stuff like that.

• 45:49Tracy Alloway?

  Yeah, no, totally. I mean, it sounds like it's changing pretty fast, or what Brad was saying. Okay, well, shall we leave it there?

• 45:56Joe Weisenthal?

  Let's leave it there.

• 45:56Tracy Alloway?

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

• 46:02Joe Weisenthal?

  And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow our producers, Carmen Rodriguez at Carmen Armin, Dashal Bennett at Dashbot, Kail Brooks at Kail Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And for more Odd Lots content, go to Bloomberg.com/oddlots, where we have a daily newsletter and all of our episodes. And you can chat about all of these topics 24/7 in our Discord, discord.gg/oddlots.

• 46:26Tracy Alloway?

  And if you enjoy Odd Lots, if you like it when we talk about the old/new economy, 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.

• 47:18Speaker 07

  Congratulations, you've built a dashboard. But now comes the follow-up question, and the follow-up to the follow-up, and the dashboard for that. Meet Hex. Give everyone the power to ask their own questions, explore data, and build with AI, all in natural language. Because every answer should spark another question, limited only by your curiosity, not your data team's bandwidth. Go deeper than dashboards. Visit hex.ai.

• 47:48Speaker 06

  If you listen to financial news, you know a lot of time is spent thinking about what's next. The next opportunity, the next investment, the next move. But sometimes what matters most is being ready for what you never saw coming. For more than 75 years, Cincinnati Insurance has worked with independent agents to help protect businesses, homes, valuables, and more. Because planning for the future isn't only about knowing what's next, it's about making sure you're ready for what you can't predict. Let Cincinnati Insurance make your bad day better. Find an independent agent at C I N F I N dot com.