July 2, 2024 • 48 mins
Brad Jacobs has made a career of starting, consolidating, and growing whole industries. He did a trucking company. He did a warehouse company. He has a freight brokerage. He created an equipment rental company. His new venture, dubbed QXO, aims to reshape the big and sprawling market for building supplies, which can encompass residential, infrastructure and commercial real estate. And he has $4.5 billion of his and his investors' money to go out and buy and build. In this special episode of the Odd Lots podcast, recorded live at the Bloomberg Invest conference in New York City, he talks about where he is in the new process, and what he plans to do once he's made his acquisitions.
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Speaker 1 (00:03):
Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:20):
Hello and welcome to another episode of the Authoughts podcast.
I'm Tracy Allaway.
Speaker 3 (00:25):
And I'm Joe wysnt Thal.
Speaker 2 (00:26):
Today we are bringing you a live episode recording that
took place at Bloomberg's recent invest conference, where we sat
down with Brad Jacobs, the billionaire and serial entrepreneur now
chairman and CEO at QXO.
Speaker 3 (00:42):
We talked to Brad late last year about his new company,
QXO and the basic plan of buying up companies within
the building supply distribution industry. And since we talked to him,
he's raised four and a half billion dollars and so
we wanted to learn a little bit more about how
he's actually going to deploy his money.
Speaker 2 (01:02):
Four and a half billion dollars is a lot to spend,
I think I read somewhere it was the biggest ever
capital raising in the building materials industry. So definitely worth
talking to him again.
Speaker 3 (01:13):
Yep, we still don't know he hasn't bought any companies yet,
but we got a better sense of where he's at
and his sort of approach to figuring out how he's
going to deploy his cash.
Speaker 2 (01:23):
Take a listen.
Speaker 3 (01:25):
So, as Tracy mentioned before, we are here interviewing Brad Jacobs,
Chrman and CEO of the Newish firm QXO, which is
going to make a major splash in the building material space. Brad,
thank you so much for joining us.
Speaker 4 (01:41):
Slight correction, we've already made it.
Speaker 3 (01:43):
Oh, yes, you've already made this.
Speaker 4 (01:45):
What have you done?
Speaker 3 (01:45):
I've seen you've raised a ton of money? Is that counts?
Speaker 4 (01:48):
So since I first, well, thank you for okay, thank you,
But since we did that podcast.
Speaker 3 (01:54):
We talked to Brad, I think in December.
Speaker 4 (01:57):
That seems like a long time ago. Yeah, we've done.
We built out the management team. Okay, so I have
fifteen amazing people now, one of whom was the head
of M and A at Barkley's's on Garden Leave, and
all the rest I know really well because they either
worked at XPO or GXO.
Speaker 3 (02:13):
Some company with EXO in it.
Speaker 4 (02:14):
Yeah it didn't have XOO in it. On the next
we didn't hire them. And then also we raised money.
We raised we put our billion dollars into the pipe
that we did into that public company, and then we
raised another three and a half billion dollars from institutional investors,
mostly long only funds, who know us, and now we're
out there. But the next stage is let's go buy
(02:36):
some companies.
Speaker 2 (02:37):
Wait, so four and a half billion dollars raised must
be the biggest single raise in the building industry's history.
Speaker 4 (02:45):
Yeah.
Speaker 2 (02:45):
Right, So what's the pitch when you're going out to
people and saying, give us your money for this as
yet unproven business model. I know you have a number
of companies all three three letter acronyms, but like, why
do they want to give you four and a half
billion dollars or three and a half Okay, here's a secret.
Speaker 4 (03:06):
I know most of the people who invest in us,
mostly people have invested in one of the xos or
gundamentals in other ways, the historical investors who did well,
and they're betting that we're going to do well again.
Speaker 2 (03:19):
So when you're talking to investors who already know you,
what do they think is the Brad Jacob's playbook for
creating companies?
Speaker 4 (03:26):
Well, as you know, I actually have a book. We
have the playbook in there.
Speaker 2 (03:29):
Oh yeah, Brad's book has also a very modest title,
which is how to make a few billion dollars.
Speaker 4 (03:35):
I think that's a good title. Catchy title gets people
to remember. So the playbook is pretty straightforward. It's first
of all, talent, making sure the people in the company
are amazing or honest or hardworking or collaborative or really
special people that they can get along with each other.
And we figure out ways where we can debate issues
(03:57):
honestly and disagree with each other without being a jerk,
being still nice and respectful, but you know, honestly debates.
We gets the right decisions, is moving fast, being decisive.
And it's an M and A play which means we
look at many, many acquisitions at the same time, so
we don't fall in love with one of them and overpay.
That's the cardinal sin in M and as. Overpaying that's
(04:19):
the ic and roic. And then integrating those businesses very
thoroughly so we have one company, one brand that has
a power in the marketplace.
Speaker 3 (04:28):
Okay, So one of the things we learned the last
time we talked to you, I think you said, across
the US and Europe, building products eight hundred billion dollar industry.
At least it was back then, maybe it's higher now.
We know there's a lot of building going on. There's
housing there's infrastructures, there's all the green stuff, there's data centers,
et cetera. We learned it's extremely fragmented this market. There's
(04:51):
no one big giant in the space with three and
a half billion dollars or four and a half billion dollars.
Are you going to start with some big deal that's
a big chunk of that or do you see that
going to a range of companies that go then consolidate.
Speaker 4 (05:05):
Stay tuned. I'll give you the scoop. Get give us
a little week.
Speaker 3 (05:09):
Come on.
Speaker 4 (05:09):
So we're not looking at tiny little companies. We're going
to build a fifty billion dollar company, fifty plus billion
dollar company over the next decade. So you know we're
going to have to chop some big wood here. So
we're looking at more larger acquisition.
Speaker 3 (05:21):
But more than one that do you see more than one?
Speaker 4 (05:25):
We're going to do more than one acquisition or over
in the coming years. We're going to be acquisitive. So
it'll go start and integrate, Yeah, M and A and
then integrate M and A, integrate and when we after
we integrate, we pay attention to a bunch of metrics
like customer satisfaction, employee engagement, on time, performance and so forth.
And if it's humming, we're closing the books on time,
(05:46):
get clean numbers, everyone is in good shape. Then we
go back and rinse, wash, repeat and go buy something else.
Speaker 2 (05:52):
I remember every Sunday when I was growing up, my
parents used to give me ten dollars for my allowance.
It was actually one thousand yen, but back then I
grow up in Japan. Back then it was about ten dollars,
and that will always be the exchange rate in my mind.
But I would get my allowance on Sunday and I
would go out and I would buy like the first
thing that I saw. You've got four and a half
(06:12):
billion dollars, do you feel a sense of urgency to
spend it?
Speaker 4 (06:18):
So we feel a sense of urgency in life in general.
We feel that time goes by fast, and if you
want to make your mark, do something big. Let's do
some stuff. So we're prone to action. The fact that
we've got four and a half billion dollars and we've
got leverage we could add on to that. That's completely irrelevant.
That doesn't put more pressure on us to do a deal.
What we have pressure on us is to do good deals.
(06:40):
A creative deals, strategically compelling deals, deals that make sense
to do, deals that we can grow them over five
or ten years and they'll be much bigger businesses at
that time.
Speaker 2 (06:51):
Let me ask the question in a slightly different way.
Before you announced QXO, did you have a potential list
of targets in your mind? Is that how it so.
Speaker 4 (07:02):
Fast? Rewind so a year and a half ago or so,
I stepped down as being CEO. I'm still chairman executive
chairman of XPO, but I stepped down as the day
to day running Mario Parkers doing that do a fantastic job.
And I looked at fifty five different industries to see
which one does my playbook fit that we can create
some shareholder value with. And I hired two consultants who
(07:26):
have expertise in this, consulting firms, and part of the
mission was to educate us about the business fast. Part
of the mission was give us a list of like
who would we buy it? Give us like a one
or two pager on. So we put together about a
thousand names to look at, and Matt Fassler and Austin
Landa worked me very closely on that project. And then
we paired it down, paired it down, we filtered it
(07:47):
to about forty names that have about three hundred billion
dollars in aggurate revenue, and then we paired it down
even more to the to the top dozen and those
are the ones that we're really focusing on.
Speaker 3 (07:58):
Let's talk about building products. So and there's a lot there,
and this is a wide ranging space. One of the
things that we talked about on the last time we
talked to you, and one of the things that Tracy
and I have learned over the last several years we've
done a lot of logistics and supply chain related episodes,
which is that much of this space the physical world,
(08:21):
ordering a bunch of lumber, ordering HVAC equipment, whatever, it
does not feel like twenty twenty four. And there's a
lot of old tech. Yeah, still like that, and so
it still seems like there's an opportunity. You talked about
this already, that there's an opportunity to upgrade the tech.
So here's what I want to ask. If I go
or let's say I'm a contractor and I need to, like,
(08:41):
you know, buy some equipment, some bricks or something like that,
what is the experience like today and what is the
experience going to be like after you've applied your secret sauce.
Speaker 4 (08:52):
Okay, it's a ton of stuff in there. So first
of all the long term growth and demand. Yeah, so
the residential let's start with there. Okay, residential construction is unconstructed.
There's millions of units were short on. And I live
in Greenwich and Connecticut, and I have friends who want
to move from Manhattan and they're on a real tough
time finding a property to buy. It's very, very tight.
(09:14):
That's not a Greenwich phenomenon. It's a country wide phenomen
it's a phenomenon in Europe too. We've underbuilt and now
so it's going to be growth. There's growth, there's gonna
be and is it old? So most houses in America
are like the average house is like forty something years old,
which is old. I was a kid ten years old,
was like an old house. As someone who was living
(09:35):
in a fifteen twenty years I says, your father having
a bad time, Like what's going on? So this is old.
So this is gonna be repairing and remodeling and there
will be new construction. Commercial is the same thing, which
is actually older. Commercial is like fifty years old is
a typical commercial building. And then you got the infrastructure
building all the roads, the bridges and the tunnels. No
trillions gonna have to be sent on that. So I
(09:56):
think if you fast forward ten years from now, high
high likelihood, there's going to be more demand for building
products than there is today. I think it's so one
of the things I filtered for when I looked at
those fifty five industries was is this an industry that's
going to get disrupted by AI or another form of
tech or automation? And I think it's a safe bet
(10:17):
that ten years from now will still have some form
of physical body, and we'll sleep in a physical house
with a physical roof from physical windows and physical doors,
And so I think there'll be more demand as a
result of all that.
Speaker 3 (10:46):
Just to follow what's the buying experience? Right now?
Speaker 4 (10:48):
Buying experience is not the right What happened?
Speaker 3 (10:50):
Someone goes to a warehouse? How does that work? I
imagine there's pen paper facts as emails, Yeah, you got it?
Speaker 4 (10:56):
What perfectly right?
Speaker 3 (10:56):
And then what's gonna what's it gonna look like? When
that's the same person goes to the same distribution center
aka warehouse and is after it's QXO five.
Speaker 4 (11:06):
Yeah. So right now, when you talk to customers and
you say what do you think, they generally think the
industry gets about six out of ten, you say, we
have great the industry one out of ten in terms
of your customer experience. How delighted are you? Ten meaning delighted,
one being it's a stinker. It's about a six. That's
what I generally hear from people, and the two main
(11:29):
reasons why people only give it a So send the
follow up question what would make it a ten? Yeah.
The two main things that you hear are, you know,
I ordered ten things, I needed the ten things and
I got six and I got back ordered on the
other four. And the other complaint they have is, you know,
I'm in a project and I ordered it, I needed
it buy a week from Tuesday, and you know I
(11:50):
got it like a week late, and that costs me money.
So it's very frustrating you to customers to not know
why is this happening. It goes to the other question technology,
sense of technology. So one of the companies that we
spun off that I still chair it is called GXO.
It's the largest pure play warehouse company in the world.
It's got over two hundred million square feet of warehouses,
(12:10):
get one thousand warehouses in a couple dozen countries. If
you go to a tip to a GXO warehouse, you're
likely to see collaborative robots, likely to see robotic arms,
autonomous equipment. You'll see a very sophisticated WMS, a warehouse
management software system that keeps track of every single SKU
(12:31):
in the warehouse and does inventory on a daily basis,
so you know everything's in the warehouse. And one of
the benefits of that is that you can do demand
forecasting and then you can do inventory management so you
get just the right amount of SKU, not too much,
and then you're killing working capital, not too little. You're
annoying customers not stocked upright. So I think if we
(12:54):
use tech to do proper twenty twenty four inventory management,
I think we can delight customers and I think that'll
differentiate us in the eyes of customers.
Speaker 2 (13:04):
I'm going to ask the obvious question then, But you
know we're talking about inventory management making the company more efficient.
Why don't existing building distribution companies already do this?
Speaker 4 (13:15):
This is about a half a dozen actually are, so
Ferguson gets the joke and they're doing that. Wats Go
understands this is doing that. Build This first source seems
to be doing a good job doing that too, and
a few other companies are too, but by and large
the industry, I have a theory to answer your question.
It's not proven. This my hypothesis. My hypothesis is, this
(13:36):
is an industry where you get about roughly seventy five
percent ish conversion from EBIDAH to free cash flow. So
there's not a lot of capex, there's working capital, there's
not a lot of capecks, so it spits off a
lot of cash. So in a downturn, there's not a
lot of bankruptcies. So if you're in the trucking business
or if you're in the garbage business, you're in a
(13:57):
construct you have high fixed costs, you have him into
When you have a downturn, you see people who like
messed up and they took on too much leverage. They
can't pay their debt, they can't service it. Boom, they're out.
You see people have inventory and they can't get rid
of it fast enough, so they have to sell it
to stressed prices. It kills them. You don't see that here.
So in this industry you don't have the lean six
(14:19):
sigma continuous improvement kais in mindset of every day I
gotta find some sofas to turn over and shake and
find some nickels and some fennies and some dimes. That's
not the mentality. So I think we'll bring that operational
rigor that focus on operational excellence, and I think we'll
bring that to the industry. There are some companies doing
a good job. Don't misunderstand me. I'm not casting the
(14:42):
whole industry and doing a lousy job. I think in general,
particularly the smaller ones, they could improve.
Speaker 3 (14:48):
Is that a matter of balance sheet capacity? You're bringing
a lot of balance sheet capacity as such, you don't
you have the maybe luxury to invest across The stacle
is that basically a.
Speaker 4 (15:01):
Couple of things. One is having the size to be
able to afford that. And we're going to invest hundreds
and hundreds of millions of dollars into technology. If you're
only doing one hundreds of millions of dollars in revenue,
you're not going to put hundreds of millions dollars in
a tech. But we need to do that. That's what's
going to differentiate us from the have nots. That's the
main thing there. The second thing is it's a mindset
(15:21):
of what I was talking about before. The industry as
a whole has not had this passionate, intense commitment to
continuously improve the business and to delight customers more and
more and more and more. It's not that passion is
not there in general. Some companies have it, but in general,
the industry doesn't have it.
Speaker 2 (15:38):
So Joe and Brad and maybe some odd blocks. Listeners
know that my husband and I are currently building a
shed in Connecticut. And when I say shed, it's actually
in New York. It would probably be the size of
a small house. But because we're doing this and we're
doing it by hand, I now feel empowered as a
construction expert, so I can ask Brad all these questions.
(15:59):
But you mentioned the frustration of getting supplies and having
to wait ages for you know, did you have to wait?
Speaker 4 (16:05):
Yes, did you get did you get your ordered delivered
in full or just in part?
Speaker 5 (16:09):
In part?
Speaker 3 (16:10):
There you go, ok Okay, okay, there you go.
Speaker 2 (16:13):
But I take I take the point about efficiency and
reducing lead times and things like that, How does technology
aid with quality control? Because I'm sure this is the
other big thing for anyone who's ever done construction work.
You order a piece of ply wood, you think that waterproof.
I'm getting very specific here. I think that waterproof coating
is going to be on the wood, and then maybe
it's not as good as you thought it was.
Speaker 4 (16:34):
That's that's two things. It's tech. The system should be
able to track that, and it should be controls on that.
And secondly, it's a cultural thing of caring. So I
mentioned before that we do M and A and then
we stop and we measure a bunch of things. And
one of the things we mentioned we measure that I
mentioned was employee engagement. You want very high levels of
(16:55):
employee morale. You want employees to care, to really really
care about the customer, and you want to hire people
who have that customer pleasing mentality. And as I was
saying before, I think the industry could use a little
more in that.
Speaker 3 (17:08):
You do one of these exo companies like every ten years,
and you've done several. I'm guessing this is the first
one that's I don't know if it's the first one actually,
but for the first time in a long time. There's
a high cost of capital interest rates, so where they are,
they may not come down anytime soon. What is the
difference today in looking at or evaluating deals in twenty
(17:31):
twenty four versus whatever you are buying in twenty fourteen.
Speaker 4 (17:34):
So let's talk about this. Does that an important point?
Let's talk about cost to capital? Okay, debt is higher
than it was the last ten years because it was
almost free. Yeah, so definitely is a cost to debt.
But we're not going to be highly levered. We're going
to lever this business something around one to two times
as our standing target. Sometimes you might go over for
short period of time in connection with an acquisition, but
(17:55):
our target is to keep it at one to two times.
Equity is not more expensive. I mean markets are all
time high and yeah that's right. Equity is okay. Equities,
But just on the.
Speaker 3 (18:05):
What about when it comes to the buying the company part?
Does the math change at all in this environment? Does
it affect sellers? Do they say, oh, I want to
wait for rates to come down in multiples to go
up or Etcider Like, how does this current environment affect
that process?
Speaker 4 (18:20):
It's a dynamic market and you have a whole range
of people. You have some people saying, you know, I
think I think it's going to get better over the
next couple of years, and the industry is going to
come down, and I'm not selling now, let's pay some
really crazy high price. Yeah. Other people say, you know what,
kind of feel soft out there. Some of the public
companies has been missing their numbers recently, and some of
the indicators coming out looks like construction might be softening,
(18:41):
the industry might be slowing in general, the economy might
be slowing possibly over the rest of the year. So
they want to sell now. So it's a range, It's
a whole range.
Speaker 2 (18:49):
Wait, tell us more about this, because of course everyone
looks at construction as a leading indicator for the economy.
Speaker 4 (18:54):
It's not the most leading. Transportation is more leading.
Speaker 2 (18:56):
Oh wait, okay, talk about that too.
Speaker 3 (18:58):
You definitely have of you on the farm with all
the bords.
Speaker 2 (19:01):
You're talking to a bunch of different.
Speaker 3 (19:03):
Tell us what's happening right now?
Speaker 4 (19:05):
Okay, there are there are two categories of professionals who
traditionally have fairly consistently been wrong about predicting the economy.
Actually three, it's one of them. Podcasters, economists, the FED,
and CEOs. So I was at a.
Speaker 3 (19:22):
You spirit journalists, so thank you.
Speaker 4 (19:24):
Journalists haven't been better at because journalists are providing both sides.
They don't really take a few on the one hand
because on the other hand, you could do like that.
So I always at a CEO Trade Association thing a
couple years ago, and you know, you have these little
slideo apps where you can vote in the audience. People
get their phones out and they vote. You should never
do that because they never come back to what you're
doing and once they're on their phones, but you take
(19:46):
a vote, and the vote was what's the likelihood of
a severe recession, a moderate recession, no recession growth? Over
ninety percent of these you know smart quote unquote CEOs
said there was either going to be a severe recession
or motor session. Well there's no recession. So it's hard
to predict this stuff. And right now it's much harder
(20:08):
than it has been in the past. And I say
that because you have these two opposite things going on.
You still have a bunch of stimulus, which is inflationary
by definition, and you have interest rates having gone up,
which is like the breaks and slowing things down, So
the economy is like really weird. You have, it grows,
but then it contracts. There's a tension there. So I
(20:28):
don't know who's going to win the arm wrestle here.
So I don't know the answer is the understands. So
I don't have a firm view with strong conviction, like
the rest.
Speaker 5 (20:36):
Of the year is going to be stronger weak.
Speaker 2 (20:54):
Well, since I mentioned conversations with other companies, here's something
I always wanted to ask a a serial roll up er,
if you will, or a M and a person. Warren
Buffett is still on my list to ask this question,
but maybe one day, but.
Speaker 3 (21:11):
Maybe I will.
Speaker 2 (21:11):
It takes when you approach a company, how do you
actually do it? What's that initial contact line?
Speaker 4 (21:18):
Very straightforward, so you send it a d M on
X slash call somebody. I just call him up and say, hey,
you know, I'm Brad Jacobs. I haven't heard of me.
I'm trying to do some acquisitions. Learn there you go
three dollars every time you buy, and and you know,
I could have an interest in buying your company. I
don't know yet. I got to learn more, but I
(21:39):
could have an interest in you know, the reaction usually
is one of two things, like, look, I'm happy to
meet you could be an interesting guy, but we're not
selling the company. That's like part sometimes true and sometimes
blown me and and other times people say, hey, you know,
at the right price, why not come on over. I
find a different reaction depending on who the seller is.
So there's this bec term of types of folks. The
(22:01):
private family companies are great because I call them up
and they say, yeah, come on over, and it usually
turns into like a three day event. We were just
hanging out meeting the people, touring the facilities, and I
really understand the business, and I appreciate that and reciprocate
for that, because that's really great. On the other end
of the spectrum would be private equity owned ones where
it's very controlled and very choreographed and you have to
(22:22):
really keep your intendant up to figure out what's true,
what's not true, and what are the real numbers and
so forth. And in between that I would put corporate companies.
We've done very well with the carve outs corporate carbouts,
and that works well. We're looking at some in this
industry as well, but even buying whole public companies has
worked out. Well for us too. We just just announced
one with RXO a couple of days. Well, actually it
(22:43):
wasn't a public Corani's division of public coanies carve out.
Speaker 3 (22:45):
It was Coyote from you Coyote, yeah right, and the
stock the investors really liked that deal.
Speaker 4 (22:50):
Up.
Speaker 2 (22:51):
Why buy an existing company as your sort of vehicle
at all? Like, why not start from scratch and do
an IPO?
Speaker 4 (22:59):
Is it just I did the same exact thing with XPO.
If you remember back in twenty eleven, there was a
trucking company called this brokerage company called Express One, which
is where XPO comes from. Express One. It was trading
on what was then called the MX American Stock Exchange
that NYS bought and we did a pipe. We did
(23:20):
a pipe into the company, took control of the board,
moved the headquarters to Grantwich, and off to the races.
We kept buying, buying more companies. I did the same
thing here. I found a public company, we did a
pipe into the company, and we're continuing to grow the company.
After that, A million territories for me to repeat.
Speaker 3 (23:39):
Going back to building products, So there's a lot, as
you mentioned, that's getting built because there's housing, there's infrastructure,
there's all the energy stuff, there's all the data centers that.
Speaker 4 (23:48):
Are energy is not the strongest of them, okay.
Speaker 3 (23:51):
But there's all the data that all the data centers
are huge.
Speaker 4 (23:54):
Electricity is huge.
Speaker 3 (23:56):
Are they competing with each other like for some of
the same supple so agree? Is the supply chain intention.
Speaker 4 (24:03):
No, they're fairly segregated. So electrical is a whole different
than plumbing and HVAC and lumber and your case, they're
fairly different.
Speaker 3 (24:12):
Are you going to be in the data center? Is
there anything that will come through your warehouses or distribution
centers that may go to data centers.
Speaker 4 (24:19):
I would love to have exposure to data centers. I'm
very bullish long term about the demand for data centers.
The AI growth needs data centers, a lot of them,
a lot of power. So yeah, I think that's a
growth area.
Speaker 2 (24:31):
You mentioned distribution for commercial real estate earlier, and I'm
curious are there additional considerations for commercial versus something like
residential or infrastructure. And one of the reasons I ask
is because we were speaking with I think it was
the CEO of Chactor Supply how lowten, and he was
talking about how expensive it is to build out these
(24:52):
big stores nowadays, and he was talking about ways to
save money in that space, and I think I jokingly
said to him, like, well, you know, you run a
distribution company. Essentially you bring goods into the store and
then you sell them. Couldn't you become your own supplier
and distributor for construction materials? And he was like, yeah,
that's something we're looking at. Would you expect to see
(25:14):
more big commercial companies like a Walmart for instance, or
a tractor Supply start to be their own suppliers and
distributors for construction materials they have the scale already.
Speaker 4 (25:26):
Yeah. Both those are good customers of the XPO families. Yeah,
I like both.
Speaker 2 (25:29):
I think the Waltons are invested in the new company
as well.
Speaker 4 (25:33):
Right, no comment, okay Bloomberg speculation. I didn't. That wasn't
from us, So I think you already. I mean sometimes
it's not through distributors. Sometimes, if you have these big purchasers,
is they go direct?
Speaker 2 (25:45):
Yeah?
Speaker 4 (25:45):
Right, direct? And that's fine. It's like in most industries,
the ones that have the massive size, massive procurement, they
tend to go direct. But that's an exception, not the rule.
That's few at the top.
Speaker 3 (25:55):
Question from the audience. That's good, by the way, I
think there's a way ye Tracy mentioned, there's a way to.
There's the QR code if you want to enter in
a question. There is others, as you mentioned, there's others
in the space in the building's products industry. Others are
trying and presumably seeing the same thing of consolidating this
hyper fragmented space. How do you think about competition for
(26:18):
deals and how do you balance that competition while not
avoiding the winner's curse or overpaying for company.
Speaker 4 (26:24):
We don't overpay, we don't underpay. We don't try to
steal a company or take advantage of anything like that.
We pay a fair price, a fair price. We don't
pay these trophy prices. So sometimes you see in many
industries companies they're not really professional m and A machines
there there once in a while do a big deal
and and and they overpay. And when you overpay, it
(26:47):
takes years and years and years to get your costing.
It doesn't work in terms of creating shareholder value. If
your focus is on shareholder value creation, then you need
to pay a reasonable price in order to get good
returns on that competition for M and A is normal.
I mean, in every industry I've been in, I haven't
had a monopoly on being a consolidator. Yeah.
Speaker 2 (27:07):
I'm going to ask a very cliched question, but I
think it might it might be illuminating in the sense
of what you look for in an acquisition. But is
there a particular deal that you're most proud of?
Speaker 4 (27:21):
Well, you know, it's like asking who's your favorite kid,
Like you can't answer that there's I should get Christmas
cards from, like most of the people life, it's I
there's a there's a Yeah, there are. I would say
two deals, they'd hard to pick which ones was so
in to too fifteen at XPO, we did two deals.
We did Conway, which got us into LTL and now
(27:41):
it's we're, you know, an LTL behemoth. And the other
one was Norba don Song, which was a French company
that did contract logistics and trucking and brokerage and LTL
and different parts of that company we put with the
different different spins and both of those were really good.
And both those are really good because they gave us
al and they gave us an opportunity to apply our
(28:03):
playbook to those businesses and dramatically improve the profitability in
the return on capital on both of them. So from
a point of view of shareholder value creation, those were
very remarkable deals. So I would pick those two.
Speaker 3 (28:16):
Why don't you tell us more about that Conway deal?
So less than truckload carrier when you see we applied
our playbook, because that's what we're trying to understand further,
what did you do Conway? Conway? Conway came into the house,
and what did you do with it?
Speaker 4 (28:30):
First thing we did is we looked at the organization
chart and figured out and when you have an organization chart,
I've looked a lot of organization charts, it should be
real elegant. It should be simple and geometric and just
really really simple, simple and straightforward. Their organization chart was
spaghetti throw out a painting. You know, there's some artists.
You look at the painting, you say, kind of looks
(28:51):
like you just like took a bunch of mud, put
it in paint on the canvas. That's what their org
chart looked like. It's very unsatisfying to look at it,
and there is a there is a correlation between the
beauty of it elegance of it and the effectiveness of it.
It's a very very interesting concept. Theirs wasn't, and they
had multiple It was a business that had grown up
Cluegate style kl Uge meeting just they bought some stuff
(29:15):
and they never really integrated it thoroughly. You know, to
do integration, you need courage, you need confidence, you need
to know that what you're doing is the right thing
and execute on it. They were more a sheepist about that.
So they had three I organizations, the three HR organizations,
the three finance accounting organ the three of everything. And
you don't need three of everything. That's two x extra
that you really need. So we went in there and
(29:36):
we did an exercise that we do all the time
as part of continuous improvement, which is look at everything
that we're spending and look at everyone who's on the
payroll and think, how are they contributing to achieving our goals?
And are they must have costs, must have people, or
they kind of nice to have but it's not really critical,
(29:58):
or are they like the hell did this get an organization?
You find a lot of that kind of stuff, particularly
in bigger companies where things just kind of grew and
no one got rid of it, but it's served its
purpose and it's not doing much more. So we went
through the whole organization and made it streamlined and more effective,
and then in the last few years we got our
(30:18):
service levels up really, really high, and as a result
of that, we're able to get yield growth and we're
able to get take market share as a result of that.
Speaker 2 (30:28):
A good question from the audience, they ask, what's the
biggest challenge of breaking into the building products supply chain.
I guess another way of asking that is, what's stopping
you from making one billion dollars of revenue right now
as opposed to the end of the year.
Speaker 4 (30:43):
Give me a little time and we've been in the
business like ten seconds, but we'll get there. I will
satisfy you on that goal. So the biggest the biggest
obstacle to achieving big goals personally too, by the way,
personally and professionally or people, the people that you associate with,
people you surround yourself with, people who deal with all
day long, the people whose exhales you inhale and vice versa.
(31:06):
That's the key thing. If you can get fantastic people, smart, honest,
hardworking people who get along with each other, and get
the right culture of how you interact with each other.
You can accomplish enormous things. You can dream big and
actually achieve it. If you don't have that, if even
you have to have it universally. You can't just have
like your top twenty five people. You can't have like
(31:28):
fifteen are hardworking, but ten, you know, maybe the work
they don't worry. You can have like fifteen honest ones
and ten are just honestly. It has to be all
in this example, twenty five out of twenty one hundred percent.
If you can concentrate on the quality of the people
and the rules of engagement between that constellation of people,
you can move mountains.
Speaker 3 (31:48):
I think there might be someone in the audience who
also is planning a roll up because they want to
know what is the what was your number two? What
almost made the cut? You know, the fifty industries you
looked at, what didn't happen, So therefore there's an opportunity
for someone else.
Speaker 4 (32:02):
So my absolute favorite one apart from this, was oil
and gas so or emp oiling gas. So I used
to be in the oil business a long time ago,
and right now, right now, you can go out and
you can buy bruising properties for three times cash flow,
and then you have an annuity for like fifteen years
or just getting.
Speaker 3 (32:21):
And that's right today, these bright right right this minute.
Speaker 4 (32:24):
However, you can't finance it. You just can't finance it.
I went to seventeen sovereign wealth funds and long only
funds that have historically financed XPO in the past and said,
went over, like the things I was looking at, so
what do you think of energy? Every single one said no, no, no,
don't do energy. We can't do that. It's a ESG
or they got burnt during the boom or for whatever reason.
(32:46):
It was just like they're sellers not buyers. Well that
makes low prices when there's not a lot of buyers.
And now similar phenomenal you see in Europe sort of,
I mean the analogy backs down at a certain point.
But in Europe right now in building products distribution, very
few buyers, very few buyers. Yeah, I can't think of
one big strategic that's doing a roll up in Europe,
(33:08):
and the private equity firms is just a handful of them,
whereas here in the United States, you know a couple
dozen of them, we're active.
Speaker 2 (33:14):
Would you have for two renewables. I mean, since you
brought up renewables, since you brought up the financing point,
I mean I don't think people Yeah, I don't think
people are falling over themselves to finance renewables necessarily, but
you don't necessarily have the mandate constructions. Is that something
you see any value in?
Speaker 4 (33:30):
I think green renewable, this is all sustainability. These are
long term real trends. This is this is this is
this is the future. It's it's not just a story.
And I think any company that wants to succeed and
prosper needs to be thinking about am I leaving the
world in a better place? So I think every company,
not just our company, not just our industry, needs to
be thinking about all those things.
Speaker 3 (33:52):
Another question about global supply chains, and obviously we hear
a lot about friends shoring or companies feeling that they
have to reduce their exposure to China because reasons or whatever.
How is that going? How are those trends going to
play out within the context of building supplies? So what
are you seeing in terms of geopolitical risk hedging? Maybe
(34:16):
is the way to put it, and the just and
the sort of changing geography of supply chains within building supplies.
Speaker 4 (34:21):
Well, China is certainly a risk because the relationship between
China and the West is probably an all time low,
so it's a it's very difficult time. So diversifying your
supply chain away from China is probably not a bad idea. Now,
in our case, we're we have a very clear perimeter
that we're going after. We're going after North America. Primarily,
(34:42):
We're not say North America, I mean USA and a
little bit of Canada, most of the USA, not not
so much Mexico and Western Europe, so France, Germany, Spain,
so forth. That's really our perimeter. And that's about eight
hundred billion dollars between those two.
Speaker 3 (34:55):
But there must be products that you expect to come
through your distribution centers, oh yea, from all over the world.
Speaker 4 (35:00):
There'll be some source from China, but you don't want
to have a preponderance of your supply chain coming from China.
That's highly risky.
Speaker 2 (35:08):
Is that different to how you would have maybe done
this kind of business previously, Like that newfound supply chain
resiliency is at the background.
Speaker 4 (35:15):
Absolutely. I mean I gave the keynote at a big
trade event out in California about I know, eight or
nine years ago, and the topic was globalism. Now it's
a big champion for thinking globally, but the world's changed
a lot in last decade.
Speaker 2 (35:26):
Yeah, you don't hear that much anymore.
Speaker 4 (35:28):
No, they don't.
Speaker 3 (35:29):
I have a question that I thought of earlier, and
I don't want to forget to ask it. It's about
warehouse tech, and we did this episode. It was actually
about the snack food industry and why there are so
many proliferations of snacks like you know, Korean prawn flavored
Doritos and stuff like that. And the guy was saying
that one of the technological breakthroughs is that with the
robots and the warehouses, they can get a lot more
(35:51):
skews within a given amount of square footage because they
could pack the warehouses in different ways. And if the
robots go around and stuff like that. What do you
see on that? Like in your for your years of
dealing with warehouses, do you are you able to get?
Is that the same in the various industries you work with,
that a given amount of square footage can have a
greater diversity of goods. These days, due to automation.
Speaker 4 (36:13):
A warehouse man as well can be far more productive
and efficient than one that's like a hardware store. So slotting,
for example s L T T I G means you
use the data to analyze which SKUs tend to go
out together, and you position those in the warehouse. You
locate them next to each other, so you save a
(36:34):
lot of time for example, and everything. So warehouse should
be less in the warehouse of the future is less
and less people and more and more collaborative robots and automation.
If you go to some of the more advanced jicks
of warehouses and you look around, you, hey, where's the people?
Very quiet here, very efficient and very very effective. What
(36:54):
it does? That's the future for sure.
Speaker 2 (36:57):
This is a question from the audience, but they're asking
because the industry is so fragmented and often, you know,
very regional. Is there part of the country that you're
more focused on, at least initially.
Speaker 4 (37:08):
No, Nationally, we want to be nationally, want to be global.
Global in the sense of Western Europe and North America.
We're not really pursuing the other parts of the world.
Speaker 3 (37:17):
But like people talk, for example about you know, there's
great business migration to the southeast Southwest, et cetera.
Speaker 4 (37:23):
But that's not at there's there's a lot of the
growth rate for constructions, certainly bigger down down south.
Speaker 2 (37:29):
Wait, here's something else. I always wanted to ask a
roll up er to use rollbrevious and M and a
profession serial entrepreneur, billionaire I suppose would work.
Speaker 4 (37:40):
Don't call me a billionaire, but M and a professional.
I like that.
Speaker 2 (37:43):
OKAYM and a profession here. But okay, we know that
you want to buy a bunch of companies. Does the
sequence that you buy them in matter?
Speaker 4 (37:51):
Like?
Speaker 2 (37:51):
Is the idea Okay, I buy this one, I buy
that one, and then I put them together and I
get to that level and then I do this and
that or is it just like we have all these targets,
let's just try to complete as many deals as in the.
Speaker 4 (38:01):
Perfect world, which doesn't exist. Yes, the sequence would be
deliberate and you'd have lots of synergy between number one
and number two and number three. In the real world,
there should be some level of opportunism and seeing what's
what's out there and what's actionable, what's a good value.
Speaker 3 (38:18):
Since we're at a conference and it's the year twenty
to twenty four, I have to ask an AI question. Great,
and I'm sure you know everyone's doing something with AI
et cetera, and I'm sure it's all great efficient, but
what specifically, what does it mean and when we you know, what,
when you when it's at this company or some of
the other exos, what does it mean to you to
(38:40):
put like AI into practice? And are there any specific
areas where you can say, look, this is a tech
that I want to call artificial intelligence, and it's either
improved the product or significantly saved on costs.
Speaker 4 (38:52):
So XPO was all about machine learning and AI. When
I first hired Mario Harrik from my CIO now CEO
when you CIO, so the vision was, here's all these
brokers and they have like these halls with like hundreds
of kids, and they're on two phones at a time
and they're playing. And we said, why do you need
these people? This is stuff that should be done on
(39:12):
an app. The shipper would prefer it would be better
for the shipper to be doing on an app, be
better for the dispatcher on the trucker to be doing
an app. And why you're paying a third of your
gross margin to sales repsen you know that this is
not adding in some cases enough value to justify that.
And at that time zero percent of the business was automated. Today,
(39:34):
our XO, the one that just bought Coyote from the EPs.
OURXO is where we put the brokerage spin. Ninety seven
percent of the orders are either sourced or covered digitally,
and I believe that is the main reason, not the
only reason. It's the main reason why OURXO has been
growing at three times industry growth rate, because the model
(39:54):
works better.
Speaker 2 (39:56):
Are there specific pieces of technology or technology platforms that
you can whole out of XPO or GXO and use
for QXO. Like do you use, for instance, like those
trackable palettes? Those are very cool I find could you
use something like that for distribution?
Speaker 4 (40:10):
So there's tons of stuff we could do with the exos.
We gotta a little careful about that. That has to
all be arm's length and market and so forth. But yeah,
there's tons of things that we could use from the exos.
You got to remember this business has a big component
of transportational logistics. This is a business where you're transporting
building materials from the OEM from the manufacturer by truck,
(40:32):
mostly a little intomotive, but mostly truck to the warehouse
that you're managing we were talking about before, and then
you're delivering it in the last mile generally to the
job site, almost always by truck. So there's a big
cost and a big efficiency and productivity and ability to
delight or annoy the customer by getting transportation logistics just right.
Speaker 3 (40:55):
Someone asks, in perfect dovetails with your answer there, how
far up and down this supplied chain do you go
to ease bottlenecks? When you think of I mean supply
chain risk. I know supply chain professionals, this is what
they've always done. But for the rest of us, supply
chain risk is this new thing that most of us
started talking about in the last three or four years,
and I have to imagine it's going to stay on
(41:16):
the minds of many business managers, particularly with the China
risk and so forth. Talk to us about some of
what you will do with QXO to hedge against that
or protect against supply chain risk. And how close do
you want to get to the producer, how close do
you want to get to the end customer to ease
those concerns.
Speaker 4 (41:35):
I want to get very close. We want to buy
directly from the manufacturer and want to sell directly to
either the final end user or the contractor that's servicing it.
More often not so much. They see more the b
that's serving the sea, the business that's serving the consumer.
So yeah, you want to be close. That's the whole business.
Speaker 3 (41:53):
How do you do it?
Speaker 4 (41:53):
The business plan is to buy in large quantities at
a price that reflects at a lower price that reflects
those larger quantities and the risks you're taking by storing
them and putting in inventory and selling them retail, and
smaller amounts at a price that is appropriate for retail,
and that's your margin. That's how you make your business.
The supply chains, yeah, but you can't blame the manufacturer.
(42:18):
You can blame anybody on the supply chain, but ourselves,
if we're a distributor, that's our responsibility. Our responsibility is
to get the supply chain right, to use technology and
to use and to use culture, to use compensation and
recognition to get people to take that seriously so that
we always have the right amount of products in stock
(42:38):
so when customers want a product, we got it, and
that when a customer needs it by a certain date, yes,
we can do that. And if we do that, if
a distributor does that professionally, I believe you'll get a
little more price, not a huge amount more price, but
you get a little bit more price, and you'll get
greater share of wallet. That's my thesis.
Speaker 2 (42:56):
I need treated plywood by this weekend.
Speaker 4 (42:58):
Brad, I know again, so this is bad.
Speaker 2 (43:03):
Okay, there's one more question from the audience. And before
I ask this one, I'm just going to give a
plug to Brad's book because it's all about his experience
as an m and a professional. But it is one
of the more unusual sort of entrepreneurial books that I've read,
because you do have some unusual strategies in the way
you think about business. So I remember there's a chapter
(43:24):
where you talk about thought experiments to make you think
in new ways, and one of the thought experiments was
imagine yourself as a banana. That one sticks in my head.
Speaker 4 (43:33):
I like that one.
Speaker 2 (43:34):
But you also worked and this actually led to another
all thoughts episode. But you've also worked with an ex
CIA official who was very instrumental in the use of
lie detectors as someone to help you do due diligence
on different companies we did and he was amazing. It's
a good episode. But this brings me to the audience question.
(43:55):
They ask, as you've applied various new and improved management
techniques to your aqui positions, what are some old techniques
that you found have to go or just aren't very
useful anymore?
Speaker 4 (44:07):
So my approach is, as you can tell from reading
the book, is really simple. It's very straightforward. You get
great people, You figure out big goals with great specificity
and clarity. What are you trying to achieve? But bold
We're going to create a fifty billion dollar company. I've
got everyone in the organization completely signed up for that.
And then you figure out what do I have to
(44:29):
do to get from here to get to there? What
are the steps I have to do? And then who's
going to be in charge of that? And then how
do we tie compensation to that? So that and how
do we measure it, keep people accountable accurately and appropriately
and fairly, reward people for achievement on that, and keep
people on track. That's my basic playbook. There's a lot
(44:51):
of other details to it. That's my basic playbook. Great people,
big vision, hold people accountable, and go make it happen,
and as a result of that, you create, in all
likelihood great shareholder value.
Speaker 3 (45:03):
The book's been out for several months, has anyone, And
it's called how to Make a billion dollars?
Speaker 4 (45:08):
Right? Few billion dollars?
Speaker 3 (45:09):
How to make a few billion dollars? Sure, sometimes Tracy
and I, because we've been doing the podcast for several years,
like we'll get a email. It's like, by the way,
I just want to say I listened to this episode
and then I went to business school, and now I
got my first job on Wall Street. You've been doing
it for a while. Has anyone called you up and say, Brad,
I just want to thank you. I've made a billion
dollars since buying your book, or a few billion billion?
Speaker 4 (45:29):
Not yet, but I'll underline the word yet. But I
tell you what I have had a lot of people
like what Tracy thought experiments.
Speaker 2 (45:36):
I have imagined myself as a banana.
Speaker 4 (45:38):
It's true because the commonality of DNA between a banana
and the humane is it's quite Significant's like ninety something percent.
Speaker 2 (45:44):
It is more than you would expect. I'll say that, Brad.
There's one There's another question I want to ask you,
which is you know you're an m and a professional
serial entrepreneur. You start one company that's very successful, then
another that's very successful, and now another. How much runway
do you give yourself for each company? And when do
you declare like, Okay, I've done it here and now
(46:06):
I'm going to move on to the new thing, or
now I feel prepared to take an additional thing on.
Speaker 4 (46:10):
If you look at my bio 'es, basically every decade
I really get into something I started from scratch, this
big idea. Get everyone, we do it, do it, do it,
do it. Ten years later we did it, and I
do it again. That's my psychic Everyone's got their bio rhythm,
that's mine. Once a decade.
Speaker 3 (46:27):
Well, we'll have you back here in a decade and
you can tell us about your next venture.
Speaker 4 (46:33):
Great, it'll have x O in it.
Speaker 3 (46:37):
Sounds good, Brad Jacobs QX So thank you so much
for coming on. Odd lots, thank you, good question.
Speaker 2 (46:57):
That was our conversation with Brad Jacobs at Bloom invest
I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 3 (47:04):
I'm Joe Wisenthal. You can follow me at The Stalwart.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
Bennett at Dashbot and Kelbrooks at Kelbrooks. Thank you to
our producer, Moses ondem and for our odd Lots content,
go to Bloomberg dot com slash odd lots where we
have transcripts, a blog and a newsletter. And if you
want to chat with fellow listeners, go check out our
(47:26):
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Speaker 2 (47:39):
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(47:59):
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Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2 (00:20):
Hello and welcome to another episode of the Authoughts podcast.
I'm Tracy Allaway.
Speaker 3 (00:25):
And I'm Joe wysnt Thal.
Speaker 2 (00:26):
Today we are bringing you a live episode recording that
took place at Bloomberg's recent invest conference, where we sat
down with Brad Jacobs, the billionaire and serial entrepreneur now
chairman and CEO at QXO.
Speaker 3 (00:42):
We talked to Brad late last year about his new company,
QXO and the basic plan of buying up companies within
the building supply distribution industry. And since we talked to him,
he's raised four and a half billion dollars and so
we wanted to learn a little bit more about how
he's actually going to deploy his money.
Speaker 2 (01:02):
Four and a half billion dollars is a lot to spend,
I think I read somewhere it was the biggest ever
capital raising in the building materials industry. So definitely worth
talking to him again.
Speaker 3 (01:13):
Yep, we still don't know he hasn't bought any companies yet,
but we got a better sense of where he's at
and his sort of approach to figuring out how he's
going to deploy his cash.
Speaker 2 (01:23):
Take a listen.
Speaker 3 (01:25):
So, as Tracy mentioned before, we are here interviewing Brad Jacobs,
Chrman and CEO of the Newish firm QXO, which is
going to make a major splash in the building material space. Brad,
thank you so much for joining us.
Speaker 4 (01:41):
Slight correction, we've already made it.
Speaker 3 (01:43):
Oh, yes, you've already made this.
Speaker 4 (01:45):
What have you done?
Speaker 3 (01:45):
I've seen you've raised a ton of money? Is that counts?
Speaker 4 (01:48):
So since I first, well, thank you for okay, thank you,
But since we did that podcast.
Speaker 3 (01:54):
We talked to Brad, I think in December.
Speaker 4 (01:57):
That seems like a long time ago. Yeah, we've done.
We built out the management team. Okay, so I have
fifteen amazing people now, one of whom was the head
of M and A at Barkley's's on Garden Leave, and
all the rest I know really well because they either
worked at XPO or GXO.
Speaker 3 (02:13):
Some company with EXO in it.
Speaker 4 (02:14):
Yeah it didn't have XOO in it. On the next
we didn't hire them. And then also we raised money.
We raised we put our billion dollars into the pipe
that we did into that public company, and then we
raised another three and a half billion dollars from institutional investors,
mostly long only funds, who know us, and now we're
out there. But the next stage is let's go buy
(02:36):
some companies.
Speaker 2 (02:37):
Wait, so four and a half billion dollars raised must
be the biggest single raise in the building industry's history.
Speaker 4 (02:45):
Yeah.
Speaker 2 (02:45):
Right, So what's the pitch when you're going out to
people and saying, give us your money for this as
yet unproven business model. I know you have a number
of companies all three three letter acronyms, but like, why
do they want to give you four and a half
billion dollars or three and a half Okay, here's a secret.
Speaker 4 (03:06):
I know most of the people who invest in us,
mostly people have invested in one of the xos or
gundamentals in other ways, the historical investors who did well,
and they're betting that we're going to do well again.
Speaker 2 (03:19):
So when you're talking to investors who already know you,
what do they think is the Brad Jacob's playbook for
creating companies?
Speaker 4 (03:26):
Well, as you know, I actually have a book. We
have the playbook in there.
Speaker 2 (03:29):
Oh yeah, Brad's book has also a very modest title,
which is how to make a few billion dollars.
Speaker 4 (03:35):
I think that's a good title. Catchy title gets people
to remember. So the playbook is pretty straightforward. It's first
of all, talent, making sure the people in the company
are amazing or honest or hardworking or collaborative or really
special people that they can get along with each other.
And we figure out ways where we can debate issues
(03:57):
honestly and disagree with each other without being a jerk,
being still nice and respectful, but you know, honestly debates.
We gets the right decisions, is moving fast, being decisive.
And it's an M and A play which means we
look at many, many acquisitions at the same time, so
we don't fall in love with one of them and overpay.
That's the cardinal sin in M and as. Overpaying that's
(04:19):
the ic and roic. And then integrating those businesses very
thoroughly so we have one company, one brand that has
a power in the marketplace.
Speaker 3 (04:28):
Okay, So one of the things we learned the last
time we talked to you, I think you said, across
the US and Europe, building products eight hundred billion dollar industry.
At least it was back then, maybe it's higher now.
We know there's a lot of building going on. There's
housing there's infrastructures, there's all the green stuff, there's data centers,
et cetera. We learned it's extremely fragmented this market. There's
(04:51):
no one big giant in the space with three and
a half billion dollars or four and a half billion dollars.
Are you going to start with some big deal that's
a big chunk of that or do you see that
going to a range of companies that go then consolidate.
Speaker 4 (05:05):
Stay tuned. I'll give you the scoop. Get give us
a little week.
Speaker 3 (05:09):
Come on.
Speaker 4 (05:09):
So we're not looking at tiny little companies. We're going
to build a fifty billion dollar company, fifty plus billion
dollar company over the next decade. So you know we're
going to have to chop some big wood here. So
we're looking at more larger acquisition.
Speaker 3 (05:21):
But more than one that do you see more than one?
Speaker 4 (05:25):
We're going to do more than one acquisition or over
in the coming years. We're going to be acquisitive. So
it'll go start and integrate, Yeah, M and A and
then integrate M and A, integrate and when we after
we integrate, we pay attention to a bunch of metrics
like customer satisfaction, employee engagement, on time, performance and so forth.
And if it's humming, we're closing the books on time,
(05:46):
get clean numbers, everyone is in good shape. Then we
go back and rinse, wash, repeat and go buy something else.
Speaker 2 (05:52):
I remember every Sunday when I was growing up, my
parents used to give me ten dollars for my allowance.
It was actually one thousand yen, but back then I
grow up in Japan. Back then it was about ten dollars,
and that will always be the exchange rate in my mind.
But I would get my allowance on Sunday and I
would go out and I would buy like the first
thing that I saw. You've got four and a half
(06:12):
billion dollars, do you feel a sense of urgency to
spend it?
Speaker 4 (06:18):
So we feel a sense of urgency in life in general.
We feel that time goes by fast, and if you
want to make your mark, do something big. Let's do
some stuff. So we're prone to action. The fact that
we've got four and a half billion dollars and we've
got leverage we could add on to that. That's completely irrelevant.
That doesn't put more pressure on us to do a deal.
What we have pressure on us is to do good deals.
(06:40):
A creative deals, strategically compelling deals, deals that make sense
to do, deals that we can grow them over five
or ten years and they'll be much bigger businesses at
that time.
Speaker 2 (06:51):
Let me ask the question in a slightly different way.
Before you announced QXO, did you have a potential list
of targets in your mind? Is that how it so.
Speaker 4 (07:02):
Fast? Rewind so a year and a half ago or so,
I stepped down as being CEO. I'm still chairman executive
chairman of XPO, but I stepped down as the day
to day running Mario Parkers doing that do a fantastic job.
And I looked at fifty five different industries to see
which one does my playbook fit that we can create
some shareholder value with. And I hired two consultants who
(07:26):
have expertise in this, consulting firms, and part of the
mission was to educate us about the business fast. Part
of the mission was give us a list of like
who would we buy it? Give us like a one
or two pager on. So we put together about a
thousand names to look at, and Matt Fassler and Austin
Landa worked me very closely on that project. And then
we paired it down, paired it down, we filtered it
(07:47):
to about forty names that have about three hundred billion
dollars in aggurate revenue, and then we paired it down
even more to the to the top dozen and those
are the ones that we're really focusing on.
Speaker 3 (07:58):
Let's talk about building products. So and there's a lot there,
and this is a wide ranging space. One of the
things that we talked about on the last time we
talked to you, and one of the things that Tracy
and I have learned over the last several years we've
done a lot of logistics and supply chain related episodes,
which is that much of this space the physical world,
(08:21):
ordering a bunch of lumber, ordering HVAC equipment, whatever, it
does not feel like twenty twenty four. And there's a
lot of old tech. Yeah, still like that, and so
it still seems like there's an opportunity. You talked about
this already, that there's an opportunity to upgrade the tech.
So here's what I want to ask. If I go
or let's say I'm a contractor and I need to, like,
(08:41):
you know, buy some equipment, some bricks or something like that,
what is the experience like today and what is the
experience going to be like after you've applied your secret sauce.
Speaker 4 (08:52):
Okay, it's a ton of stuff in there. So first
of all the long term growth and demand. Yeah, so
the residential let's start with there. Okay, residential construction is unconstructed.
There's millions of units were short on. And I live
in Greenwich and Connecticut, and I have friends who want
to move from Manhattan and they're on a real tough
time finding a property to buy. It's very, very tight.
(09:14):
That's not a Greenwich phenomenon. It's a country wide phenomen
it's a phenomenon in Europe too. We've underbuilt and now
so it's going to be growth. There's growth, there's gonna
be and is it old? So most houses in America
are like the average house is like forty something years old,
which is old. I was a kid ten years old,
was like an old house. As someone who was living
(09:35):
in a fifteen twenty years I says, your father having
a bad time, Like what's going on? So this is old.
So this is gonna be repairing and remodeling and there
will be new construction. Commercial is the same thing, which
is actually older. Commercial is like fifty years old is
a typical commercial building. And then you got the infrastructure
building all the roads, the bridges and the tunnels. No
trillions gonna have to be sent on that. So I
(09:56):
think if you fast forward ten years from now, high
high likelihood, there's going to be more demand for building
products than there is today. I think it's so one
of the things I filtered for when I looked at
those fifty five industries was is this an industry that's
going to get disrupted by AI or another form of
tech or automation? And I think it's a safe bet
(10:17):
that ten years from now will still have some form
of physical body, and we'll sleep in a physical house
with a physical roof from physical windows and physical doors,
And so I think there'll be more demand as a
result of all that.
Speaker 3 (10:46):
Just to follow what's the buying experience? Right now?
Speaker 4 (10:48):
Buying experience is not the right What happened?
Speaker 3 (10:50):
Someone goes to a warehouse? How does that work? I
imagine there's pen paper facts as emails, Yeah, you got it?
Speaker 4 (10:56):
What perfectly right?
Speaker 3 (10:56):
And then what's gonna what's it gonna look like? When
that's the same person goes to the same distribution center
aka warehouse and is after it's QXO five.
Speaker 4 (11:06):
Yeah. So right now, when you talk to customers and
you say what do you think, they generally think the
industry gets about six out of ten, you say, we
have great the industry one out of ten in terms
of your customer experience. How delighted are you? Ten meaning delighted,
one being it's a stinker. It's about a six. That's
what I generally hear from people, and the two main
(11:29):
reasons why people only give it a So send the
follow up question what would make it a ten? Yeah.
The two main things that you hear are, you know,
I ordered ten things, I needed the ten things and
I got six and I got back ordered on the
other four. And the other complaint they have is, you know,
I'm in a project and I ordered it, I needed
it buy a week from Tuesday, and you know I
(11:50):
got it like a week late, and that costs me money.
So it's very frustrating you to customers to not know
why is this happening. It goes to the other question technology,
sense of technology. So one of the companies that we
spun off that I still chair it is called GXO.
It's the largest pure play warehouse company in the world.
It's got over two hundred million square feet of warehouses,
(12:10):
get one thousand warehouses in a couple dozen countries. If
you go to a tip to a GXO warehouse, you're
likely to see collaborative robots, likely to see robotic arms,
autonomous equipment. You'll see a very sophisticated WMS, a warehouse
management software system that keeps track of every single SKU
(12:31):
in the warehouse and does inventory on a daily basis,
so you know everything's in the warehouse. And one of
the benefits of that is that you can do demand
forecasting and then you can do inventory management so you
get just the right amount of SKU, not too much,
and then you're killing working capital, not too little. You're
annoying customers not stocked upright. So I think if we
(12:54):
use tech to do proper twenty twenty four inventory management,
I think we can delight customers and I think that'll
differentiate us in the eyes of customers.
Speaker 2 (13:04):
I'm going to ask the obvious question then, But you
know we're talking about inventory management making the company more efficient.
Why don't existing building distribution companies already do this?
Speaker 4 (13:15):
This is about a half a dozen actually are, so
Ferguson gets the joke and they're doing that. Wats Go
understands this is doing that. Build This first source seems
to be doing a good job doing that too, and
a few other companies are too, but by and large
the industry, I have a theory to answer your question.
It's not proven. This my hypothesis. My hypothesis is, this
(13:36):
is an industry where you get about roughly seventy five
percent ish conversion from EBIDAH to free cash flow. So
there's not a lot of capex, there's working capital, there's
not a lot of capecks, so it spits off a
lot of cash. So in a downturn, there's not a
lot of bankruptcies. So if you're in the trucking business
or if you're in the garbage business, you're in a
(13:57):
construct you have high fixed costs, you have him into
When you have a downturn, you see people who like
messed up and they took on too much leverage. They
can't pay their debt, they can't service it. Boom, they're out.
You see people have inventory and they can't get rid
of it fast enough, so they have to sell it
to stressed prices. It kills them. You don't see that here.
So in this industry you don't have the lean six
(14:19):
sigma continuous improvement kais in mindset of every day I
gotta find some sofas to turn over and shake and
find some nickels and some fennies and some dimes. That's
not the mentality. So I think we'll bring that operational
rigor that focus on operational excellence, and I think we'll
bring that to the industry. There are some companies doing
a good job. Don't misunderstand me. I'm not casting the
(14:42):
whole industry and doing a lousy job. I think in general,
particularly the smaller ones, they could improve.
Speaker 3 (14:48):
Is that a matter of balance sheet capacity? You're bringing
a lot of balance sheet capacity as such, you don't
you have the maybe luxury to invest across The stacle
is that basically a.
Speaker 4 (15:01):
Couple of things. One is having the size to be
able to afford that. And we're going to invest hundreds
and hundreds of millions of dollars into technology. If you're
only doing one hundreds of millions of dollars in revenue,
you're not going to put hundreds of millions dollars in
a tech. But we need to do that. That's what's
going to differentiate us from the have nots. That's the
main thing there. The second thing is it's a mindset
(15:21):
of what I was talking about before. The industry as
a whole has not had this passionate, intense commitment to
continuously improve the business and to delight customers more and
more and more and more. It's not that passion is
not there in general. Some companies have it, but in general,
the industry doesn't have it.
Speaker 2 (15:38):
So Joe and Brad and maybe some odd blocks. Listeners
know that my husband and I are currently building a
shed in Connecticut. And when I say shed, it's actually
in New York. It would probably be the size of
a small house. But because we're doing this and we're
doing it by hand, I now feel empowered as a
construction expert, so I can ask Brad all these questions.
(15:59):
But you mentioned the frustration of getting supplies and having
to wait ages for you know, did you have to wait?
Speaker 4 (16:05):
Yes, did you get did you get your ordered delivered
in full or just in part?
Speaker 5 (16:09):
In part?
Speaker 3 (16:10):
There you go, ok Okay, okay, there you go.
Speaker 2 (16:13):
But I take I take the point about efficiency and
reducing lead times and things like that, How does technology
aid with quality control? Because I'm sure this is the
other big thing for anyone who's ever done construction work.
You order a piece of ply wood, you think that waterproof.
I'm getting very specific here. I think that waterproof coating
is going to be on the wood, and then maybe
it's not as good as you thought it was.
Speaker 4 (16:34):
That's that's two things. It's tech. The system should be
able to track that, and it should be controls on that.
And secondly, it's a cultural thing of caring. So I
mentioned before that we do M and A and then
we stop and we measure a bunch of things. And
one of the things we mentioned we measure that I
mentioned was employee engagement. You want very high levels of
(16:55):
employee morale. You want employees to care, to really really
care about the customer, and you want to hire people
who have that customer pleasing mentality. And as I was
saying before, I think the industry could use a little
more in that.
Speaker 3 (17:08):
You do one of these exo companies like every ten years,
and you've done several. I'm guessing this is the first
one that's I don't know if it's the first one actually,
but for the first time in a long time. There's
a high cost of capital interest rates, so where they are,
they may not come down anytime soon. What is the
difference today in looking at or evaluating deals in twenty
(17:31):
twenty four versus whatever you are buying in twenty fourteen.
Speaker 4 (17:34):
So let's talk about this. Does that an important point?
Let's talk about cost to capital? Okay, debt is higher
than it was the last ten years because it was
almost free. Yeah, so definitely is a cost to debt.
But we're not going to be highly levered. We're going
to lever this business something around one to two times
as our standing target. Sometimes you might go over for
short period of time in connection with an acquisition, but
(17:55):
our target is to keep it at one to two times.
Equity is not more expensive. I mean markets are all
time high and yeah that's right. Equity is okay. Equities,
But just on the.
Speaker 3 (18:05):
What about when it comes to the buying the company part?
Does the math change at all in this environment? Does
it affect sellers? Do they say, oh, I want to
wait for rates to come down in multiples to go
up or Etcider Like, how does this current environment affect
that process?
Speaker 4 (18:20):
It's a dynamic market and you have a whole range
of people. You have some people saying, you know, I
think I think it's going to get better over the
next couple of years, and the industry is going to
come down, and I'm not selling now, let's pay some
really crazy high price. Yeah. Other people say, you know what,
kind of feel soft out there. Some of the public
companies has been missing their numbers recently, and some of
the indicators coming out looks like construction might be softening,
(18:41):
the industry might be slowing in general, the economy might
be slowing possibly over the rest of the year. So
they want to sell now. So it's a range, It's
a whole range.
Speaker 2 (18:49):
Wait, tell us more about this, because of course everyone
looks at construction as a leading indicator for the economy.
Speaker 4 (18:54):
It's not the most leading. Transportation is more leading.
Speaker 2 (18:56):
Oh wait, okay, talk about that too.
Speaker 3 (18:58):
You definitely have of you on the farm with all
the bords.
Speaker 2 (19:01):
You're talking to a bunch of different.
Speaker 3 (19:03):
Tell us what's happening right now?
Speaker 4 (19:05):
Okay, there are there are two categories of professionals who
traditionally have fairly consistently been wrong about predicting the economy.
Actually three, it's one of them. Podcasters, economists, the FED,
and CEOs. So I was at a.
Speaker 3 (19:22):
You spirit journalists, so thank you.
Speaker 4 (19:24):
Journalists haven't been better at because journalists are providing both sides.
They don't really take a few on the one hand
because on the other hand, you could do like that.
So I always at a CEO Trade Association thing a
couple years ago, and you know, you have these little
slideo apps where you can vote in the audience. People
get their phones out and they vote. You should never
do that because they never come back to what you're
doing and once they're on their phones, but you take
(19:46):
a vote, and the vote was what's the likelihood of
a severe recession, a moderate recession, no recession growth? Over
ninety percent of these you know smart quote unquote CEOs
said there was either going to be a severe recession
or motor session. Well there's no recession. So it's hard
to predict this stuff. And right now it's much harder
(20:08):
than it has been in the past. And I say
that because you have these two opposite things going on.
You still have a bunch of stimulus, which is inflationary
by definition, and you have interest rates having gone up,
which is like the breaks and slowing things down, So
the economy is like really weird. You have, it grows,
but then it contracts. There's a tension there. So I
(20:28):
don't know who's going to win the arm wrestle here.
So I don't know the answer is the understands. So
I don't have a firm view with strong conviction, like
the rest.
Speaker 5 (20:36):
Of the year is going to be stronger weak.
Speaker 2 (20:54):
Well, since I mentioned conversations with other companies, here's something
I always wanted to ask a a serial roll up er,
if you will, or a M and a person. Warren
Buffett is still on my list to ask this question,
but maybe one day, but.
Speaker 3 (21:11):
Maybe I will.
Speaker 2 (21:11):
It takes when you approach a company, how do you
actually do it? What's that initial contact line?
Speaker 4 (21:18):
Very straightforward, so you send it a d M on
X slash call somebody. I just call him up and say, hey,
you know, I'm Brad Jacobs. I haven't heard of me.
I'm trying to do some acquisitions. Learn there you go
three dollars every time you buy, and and you know,
I could have an interest in buying your company. I
don't know yet. I got to learn more, but I
(21:39):
could have an interest in you know, the reaction usually
is one of two things, like, look, I'm happy to
meet you could be an interesting guy, but we're not
selling the company. That's like part sometimes true and sometimes
blown me and and other times people say, hey, you know,
at the right price, why not come on over. I
find a different reaction depending on who the seller is.
So there's this bec term of types of folks. The
(22:01):
private family companies are great because I call them up
and they say, yeah, come on over, and it usually
turns into like a three day event. We were just
hanging out meeting the people, touring the facilities, and I
really understand the business, and I appreciate that and reciprocate
for that, because that's really great. On the other end
of the spectrum would be private equity owned ones where
it's very controlled and very choreographed and you have to
(22:22):
really keep your intendant up to figure out what's true,
what's not true, and what are the real numbers and
so forth. And in between that I would put corporate companies.
We've done very well with the carve outs corporate carbouts,
and that works well. We're looking at some in this
industry as well, but even buying whole public companies has
worked out. Well for us too. We just just announced
one with RXO a couple of days. Well, actually it
(22:43):
wasn't a public Corani's division of public coanies carve out.
Speaker 3 (22:45):
It was Coyote from you Coyote, yeah right, and the
stock the investors really liked that deal.
Speaker 4 (22:50):
Up.
Speaker 2 (22:51):
Why buy an existing company as your sort of vehicle
at all? Like, why not start from scratch and do
an IPO?
Speaker 4 (22:59):
Is it just I did the same exact thing with XPO.
If you remember back in twenty eleven, there was a
trucking company called this brokerage company called Express One, which
is where XPO comes from. Express One. It was trading
on what was then called the MX American Stock Exchange
that NYS bought and we did a pipe. We did
(23:20):
a pipe into the company, took control of the board,
moved the headquarters to Grantwich, and off to the races.
We kept buying, buying more companies. I did the same
thing here. I found a public company, we did a
pipe into the company, and we're continuing to grow the company.
After that, A million territories for me to repeat.
Speaker 3 (23:39):
Going back to building products, So there's a lot, as
you mentioned, that's getting built because there's housing, there's infrastructure,
there's all the energy stuff, there's all the data centers that.
Speaker 4 (23:48):
Are energy is not the strongest of them, okay.
Speaker 3 (23:51):
But there's all the data that all the data centers
are huge.
Speaker 4 (23:54):
Electricity is huge.
Speaker 3 (23:56):
Are they competing with each other like for some of
the same supple so agree? Is the supply chain intention.
Speaker 4 (24:03):
No, they're fairly segregated. So electrical is a whole different
than plumbing and HVAC and lumber and your case, they're
fairly different.
Speaker 3 (24:12):
Are you going to be in the data center? Is
there anything that will come through your warehouses or distribution
centers that may go to data centers.
Speaker 4 (24:19):
I would love to have exposure to data centers. I'm
very bullish long term about the demand for data centers.
The AI growth needs data centers, a lot of them,
a lot of power. So yeah, I think that's a
growth area.
Speaker 2 (24:31):
You mentioned distribution for commercial real estate earlier, and I'm
curious are there additional considerations for commercial versus something like
residential or infrastructure. And one of the reasons I ask
is because we were speaking with I think it was
the CEO of Chactor Supply how lowten, and he was
talking about how expensive it is to build out these
(24:52):
big stores nowadays, and he was talking about ways to
save money in that space, and I think I jokingly
said to him, like, well, you know, you run a
distribution company. Essentially you bring goods into the store and
then you sell them. Couldn't you become your own supplier
and distributor for construction materials? And he was like, yeah,
that's something we're looking at. Would you expect to see
(25:14):
more big commercial companies like a Walmart for instance, or
a tractor Supply start to be their own suppliers and
distributors for construction materials they have the scale already.
Speaker 4 (25:26):
Yeah. Both those are good customers of the XPO families. Yeah,
I like both.
Speaker 2 (25:29):
I think the Waltons are invested in the new company
as well.
Speaker 4 (25:33):
Right, no comment, okay Bloomberg speculation. I didn't. That wasn't
from us, So I think you already. I mean sometimes
it's not through distributors. Sometimes, if you have these big purchasers,
is they go direct?
Speaker 2 (25:45):
Yeah?
Speaker 4 (25:45):
Right, direct? And that's fine. It's like in most industries,
the ones that have the massive size, massive procurement, they
tend to go direct. But that's an exception, not the rule.
That's few at the top.
Speaker 3 (25:55):
Question from the audience. That's good, by the way, I
think there's a way ye Tracy mentioned, there's a way to.
There's the QR code if you want to enter in
a question. There is others, as you mentioned, there's others
in the space in the building's products industry. Others are
trying and presumably seeing the same thing of consolidating this
hyper fragmented space. How do you think about competition for
(26:18):
deals and how do you balance that competition while not
avoiding the winner's curse or overpaying for company.
Speaker 4 (26:24):
We don't overpay, we don't underpay. We don't try to
steal a company or take advantage of anything like that.
We pay a fair price, a fair price. We don't
pay these trophy prices. So sometimes you see in many
industries companies they're not really professional m and A machines
there there once in a while do a big deal
and and and they overpay. And when you overpay, it
(26:47):
takes years and years and years to get your costing.
It doesn't work in terms of creating shareholder value. If
your focus is on shareholder value creation, then you need
to pay a reasonable price in order to get good
returns on that competition for M and A is normal.
I mean, in every industry I've been in, I haven't
had a monopoly on being a consolidator. Yeah.
Speaker 2 (27:07):
I'm going to ask a very cliched question, but I
think it might it might be illuminating in the sense
of what you look for in an acquisition. But is
there a particular deal that you're most proud of?
Speaker 4 (27:21):
Well, you know, it's like asking who's your favorite kid,
Like you can't answer that there's I should get Christmas
cards from, like most of the people life, it's I
there's a there's a Yeah, there are. I would say
two deals, they'd hard to pick which ones was so
in to too fifteen at XPO, we did two deals.
We did Conway, which got us into LTL and now
(27:41):
it's we're, you know, an LTL behemoth. And the other
one was Norba don Song, which was a French company
that did contract logistics and trucking and brokerage and LTL
and different parts of that company we put with the
different different spins and both of those were really good.
And both those are really good because they gave us
al and they gave us an opportunity to apply our
(28:03):
playbook to those businesses and dramatically improve the profitability in
the return on capital on both of them. So from
a point of view of shareholder value creation, those were
very remarkable deals. So I would pick those two.
Speaker 3 (28:16):
Why don't you tell us more about that Conway deal?
So less than truckload carrier when you see we applied
our playbook, because that's what we're trying to understand further,
what did you do Conway? Conway? Conway came into the house,
and what did you do with it?
Speaker 4 (28:30):
First thing we did is we looked at the organization
chart and figured out and when you have an organization chart,
I've looked a lot of organization charts, it should be
real elegant. It should be simple and geometric and just
really really simple, simple and straightforward. Their organization chart was
spaghetti throw out a painting. You know, there's some artists.
You look at the painting, you say, kind of looks
(28:51):
like you just like took a bunch of mud, put
it in paint on the canvas. That's what their org
chart looked like. It's very unsatisfying to look at it,
and there is a there is a correlation between the
beauty of it elegance of it and the effectiveness of it.
It's a very very interesting concept. Theirs wasn't, and they
had multiple It was a business that had grown up
Cluegate style kl Uge meeting just they bought some stuff
(29:15):
and they never really integrated it thoroughly. You know, to
do integration, you need courage, you need confidence, you need
to know that what you're doing is the right thing
and execute on it. They were more a sheepist about that.
So they had three I organizations, the three HR organizations,
the three finance accounting organ the three of everything. And
you don't need three of everything. That's two x extra
that you really need. So we went in there and
(29:36):
we did an exercise that we do all the time
as part of continuous improvement, which is look at everything
that we're spending and look at everyone who's on the
payroll and think, how are they contributing to achieving our goals?
And are they must have costs, must have people, or
they kind of nice to have but it's not really critical,
(29:58):
or are they like the hell did this get an organization?
You find a lot of that kind of stuff, particularly
in bigger companies where things just kind of grew and
no one got rid of it, but it's served its
purpose and it's not doing much more. So we went
through the whole organization and made it streamlined and more effective,
and then in the last few years we got our
(30:18):
service levels up really, really high, and as a result
of that, we're able to get yield growth and we're
able to get take market share as a result of that.
Speaker 2 (30:28):
A good question from the audience, they ask, what's the
biggest challenge of breaking into the building products supply chain.
I guess another way of asking that is, what's stopping
you from making one billion dollars of revenue right now
as opposed to the end of the year.
Speaker 4 (30:43):
Give me a little time and we've been in the
business like ten seconds, but we'll get there. I will
satisfy you on that goal. So the biggest the biggest
obstacle to achieving big goals personally too, by the way,
personally and professionally or people, the people that you associate with,
people you surround yourself with, people who deal with all
day long, the people whose exhales you inhale and vice versa.
(31:06):
That's the key thing. If you can get fantastic people, smart, honest,
hardworking people who get along with each other, and get
the right culture of how you interact with each other.
You can accomplish enormous things. You can dream big and
actually achieve it. If you don't have that, if even
you have to have it universally. You can't just have
like your top twenty five people. You can't have like
(31:28):
fifteen are hardworking, but ten, you know, maybe the work
they don't worry. You can have like fifteen honest ones
and ten are just honestly. It has to be all
in this example, twenty five out of twenty one hundred percent.
If you can concentrate on the quality of the people
and the rules of engagement between that constellation of people,
you can move mountains.
Speaker 3 (31:48):
I think there might be someone in the audience who
also is planning a roll up because they want to
know what is the what was your number two? What
almost made the cut? You know, the fifty industries you
looked at, what didn't happen, So therefore there's an opportunity
for someone else.
Speaker 4 (32:02):
So my absolute favorite one apart from this, was oil
and gas so or emp oiling gas. So I used
to be in the oil business a long time ago,
and right now, right now, you can go out and
you can buy bruising properties for three times cash flow,
and then you have an annuity for like fifteen years
or just getting.
Speaker 3 (32:21):
And that's right today, these bright right right this minute.
Speaker 4 (32:24):
However, you can't finance it. You just can't finance it.
I went to seventeen sovereign wealth funds and long only
funds that have historically financed XPO in the past and said,
went over, like the things I was looking at, so
what do you think of energy? Every single one said no, no, no,
don't do energy. We can't do that. It's a ESG
or they got burnt during the boom or for whatever reason.
(32:46):
It was just like they're sellers not buyers. Well that
makes low prices when there's not a lot of buyers.
And now similar phenomenal you see in Europe sort of,
I mean the analogy backs down at a certain point.
But in Europe right now in building products distribution, very
few buyers, very few buyers. Yeah, I can't think of
one big strategic that's doing a roll up in Europe,
(33:08):
and the private equity firms is just a handful of them,
whereas here in the United States, you know a couple
dozen of them, we're active.
Speaker 2 (33:14):
Would you have for two renewables. I mean, since you
brought up renewables, since you brought up the financing point,
I mean I don't think people Yeah, I don't think
people are falling over themselves to finance renewables necessarily, but
you don't necessarily have the mandate constructions. Is that something
you see any value in?
Speaker 4 (33:30):
I think green renewable, this is all sustainability. These are
long term real trends. This is this is this is
this is the future. It's it's not just a story.
And I think any company that wants to succeed and
prosper needs to be thinking about am I leaving the
world in a better place? So I think every company,
not just our company, not just our industry, needs to
be thinking about all those things.
Speaker 3 (33:52):
Another question about global supply chains, and obviously we hear
a lot about friends shoring or companies feeling that they
have to reduce their exposure to China because reasons or whatever.
How is that going? How are those trends going to
play out within the context of building supplies? So what
are you seeing in terms of geopolitical risk hedging? Maybe
(34:16):
is the way to put it, and the just and
the sort of changing geography of supply chains within building supplies.
Speaker 4 (34:21):
Well, China is certainly a risk because the relationship between
China and the West is probably an all time low,
so it's a it's very difficult time. So diversifying your
supply chain away from China is probably not a bad idea. Now,
in our case, we're we have a very clear perimeter
that we're going after. We're going after North America. Primarily,
(34:42):
We're not say North America, I mean USA and a
little bit of Canada, most of the USA, not not
so much Mexico and Western Europe, so France, Germany, Spain,
so forth. That's really our perimeter. And that's about eight
hundred billion dollars between those two.
Speaker 3 (34:55):
But there must be products that you expect to come
through your distribution centers, oh yea, from all over the world.
Speaker 4 (35:00):
There'll be some source from China, but you don't want
to have a preponderance of your supply chain coming from China.
That's highly risky.
Speaker 2 (35:08):
Is that different to how you would have maybe done
this kind of business previously, Like that newfound supply chain
resiliency is at the background.
Speaker 4 (35:15):
Absolutely. I mean I gave the keynote at a big
trade event out in California about I know, eight or
nine years ago, and the topic was globalism. Now it's
a big champion for thinking globally, but the world's changed
a lot in last decade.
Speaker 2 (35:26):
Yeah, you don't hear that much anymore.
Speaker 4 (35:28):
No, they don't.
Speaker 3 (35:29):
I have a question that I thought of earlier, and
I don't want to forget to ask it. It's about
warehouse tech, and we did this episode. It was actually
about the snack food industry and why there are so
many proliferations of snacks like you know, Korean prawn flavored
Doritos and stuff like that. And the guy was saying
that one of the technological breakthroughs is that with the
robots and the warehouses, they can get a lot more
(35:51):
skews within a given amount of square footage because they
could pack the warehouses in different ways. And if the
robots go around and stuff like that. What do you
see on that? Like in your for your years of
dealing with warehouses, do you are you able to get?
Is that the same in the various industries you work with,
that a given amount of square footage can have a
greater diversity of goods. These days, due to automation.
Speaker 4 (36:13):
A warehouse man as well can be far more productive
and efficient than one that's like a hardware store. So slotting,
for example s L T T I G means you
use the data to analyze which SKUs tend to go
out together, and you position those in the warehouse. You
locate them next to each other, so you save a
(36:34):
lot of time for example, and everything. So warehouse should
be less in the warehouse of the future is less
and less people and more and more collaborative robots and automation.
If you go to some of the more advanced jicks
of warehouses and you look around, you, hey, where's the people?
Very quiet here, very efficient and very very effective. What
(36:54):
it does? That's the future for sure.
Speaker 2 (36:57):
This is a question from the audience, but they're asking
because the industry is so fragmented and often, you know,
very regional. Is there part of the country that you're
more focused on, at least initially.
Speaker 4 (37:08):
No, Nationally, we want to be nationally, want to be global.
Global in the sense of Western Europe and North America.
We're not really pursuing the other parts of the world.
Speaker 3 (37:17):
But like people talk, for example about you know, there's
great business migration to the southeast Southwest, et cetera.
Speaker 4 (37:23):
But that's not at there's there's a lot of the
growth rate for constructions, certainly bigger down down south.
Speaker 2 (37:29):
Wait, here's something else. I always wanted to ask a
roll up er to use rollbrevious and M and a
profession serial entrepreneur, billionaire I suppose would work.
Speaker 4 (37:40):
Don't call me a billionaire, but M and a professional.
I like that.
Speaker 2 (37:43):
OKAYM and a profession here. But okay, we know that
you want to buy a bunch of companies. Does the
sequence that you buy them in matter?
Speaker 4 (37:51):
Like?
Speaker 2 (37:51):
Is the idea Okay, I buy this one, I buy
that one, and then I put them together and I
get to that level and then I do this and
that or is it just like we have all these targets,
let's just try to complete as many deals as in the.
Speaker 4 (38:01):
Perfect world, which doesn't exist. Yes, the sequence would be
deliberate and you'd have lots of synergy between number one
and number two and number three. In the real world,
there should be some level of opportunism and seeing what's
what's out there and what's actionable, what's a good value.
Speaker 3 (38:18):
Since we're at a conference and it's the year twenty
to twenty four, I have to ask an AI question. Great,
and I'm sure you know everyone's doing something with AI
et cetera, and I'm sure it's all great efficient, but
what specifically, what does it mean and when we you know, what,
when you when it's at this company or some of
the other exos, what does it mean to you to
(38:40):
put like AI into practice? And are there any specific
areas where you can say, look, this is a tech
that I want to call artificial intelligence, and it's either
improved the product or significantly saved on costs.
Speaker 4 (38:52):
So XPO was all about machine learning and AI. When
I first hired Mario Harrik from my CIO now CEO
when you CIO, so the vision was, here's all these
brokers and they have like these halls with like hundreds
of kids, and they're on two phones at a time
and they're playing. And we said, why do you need
these people? This is stuff that should be done on
(39:12):
an app. The shipper would prefer it would be better
for the shipper to be doing on an app, be
better for the dispatcher on the trucker to be doing
an app. And why you're paying a third of your
gross margin to sales repsen you know that this is
not adding in some cases enough value to justify that.
And at that time zero percent of the business was automated. Today,
(39:34):
our XO, the one that just bought Coyote from the EPs.
OURXO is where we put the brokerage spin. Ninety seven
percent of the orders are either sourced or covered digitally,
and I believe that is the main reason, not the
only reason. It's the main reason why OURXO has been
growing at three times industry growth rate, because the model
(39:54):
works better.
Speaker 2 (39:56):
Are there specific pieces of technology or technology platforms that
you can whole out of XPO or GXO and use
for QXO. Like do you use, for instance, like those
trackable palettes? Those are very cool I find could you
use something like that for distribution?
Speaker 4 (40:10):
So there's tons of stuff we could do with the exos.
We gotta a little careful about that. That has to
all be arm's length and market and so forth. But yeah,
there's tons of things that we could use from the exos.
You got to remember this business has a big component
of transportational logistics. This is a business where you're transporting
building materials from the OEM from the manufacturer by truck,
(40:32):
mostly a little intomotive, but mostly truck to the warehouse
that you're managing we were talking about before, and then
you're delivering it in the last mile generally to the
job site, almost always by truck. So there's a big
cost and a big efficiency and productivity and ability to
delight or annoy the customer by getting transportation logistics just right.
Speaker 3 (40:55):
Someone asks, in perfect dovetails with your answer there, how
far up and down this supplied chain do you go
to ease bottlenecks? When you think of I mean supply
chain risk. I know supply chain professionals, this is what
they've always done. But for the rest of us, supply
chain risk is this new thing that most of us
started talking about in the last three or four years,
and I have to imagine it's going to stay on
(41:16):
the minds of many business managers, particularly with the China
risk and so forth. Talk to us about some of
what you will do with QXO to hedge against that
or protect against supply chain risk. And how close do
you want to get to the producer, how close do
you want to get to the end customer to ease
those concerns.
Speaker 4 (41:35):
I want to get very close. We want to buy
directly from the manufacturer and want to sell directly to
either the final end user or the contractor that's servicing it.
More often not so much. They see more the b
that's serving the sea, the business that's serving the consumer.
So yeah, you want to be close. That's the whole business.
Speaker 3 (41:53):
How do you do it?
Speaker 4 (41:53):
The business plan is to buy in large quantities at
a price that reflects at a lower price that reflects
those larger quantities and the risks you're taking by storing
them and putting in inventory and selling them retail, and
smaller amounts at a price that is appropriate for retail,
and that's your margin. That's how you make your business.
The supply chains, yeah, but you can't blame the manufacturer.
(42:18):
You can blame anybody on the supply chain, but ourselves,
if we're a distributor, that's our responsibility. Our responsibility is
to get the supply chain right, to use technology and
to use and to use culture, to use compensation and
recognition to get people to take that seriously so that
we always have the right amount of products in stock
(42:38):
so when customers want a product, we got it, and
that when a customer needs it by a certain date, yes,
we can do that. And if we do that, if
a distributor does that professionally, I believe you'll get a
little more price, not a huge amount more price, but
you get a little bit more price, and you'll get
greater share of wallet. That's my thesis.
Speaker 2 (42:56):
I need treated plywood by this weekend.
Speaker 4 (42:58):
Brad, I know again, so this is bad.
Speaker 2 (43:03):
Okay, there's one more question from the audience. And before
I ask this one, I'm just going to give a
plug to Brad's book because it's all about his experience
as an m and a professional. But it is one
of the more unusual sort of entrepreneurial books that I've read,
because you do have some unusual strategies in the way
you think about business. So I remember there's a chapter
(43:24):
where you talk about thought experiments to make you think
in new ways, and one of the thought experiments was
imagine yourself as a banana. That one sticks in my head.
Speaker 4 (43:33):
I like that one.
Speaker 2 (43:34):
But you also worked and this actually led to another
all thoughts episode. But you've also worked with an ex
CIA official who was very instrumental in the use of
lie detectors as someone to help you do due diligence
on different companies we did and he was amazing. It's
a good episode. But this brings me to the audience question.
(43:55):
They ask, as you've applied various new and improved management
techniques to your aqui positions, what are some old techniques
that you found have to go or just aren't very
useful anymore?
Speaker 4 (44:07):
So my approach is, as you can tell from reading
the book, is really simple. It's very straightforward. You get
great people, You figure out big goals with great specificity
and clarity. What are you trying to achieve? But bold
We're going to create a fifty billion dollar company. I've
got everyone in the organization completely signed up for that.
And then you figure out what do I have to
(44:29):
do to get from here to get to there? What
are the steps I have to do? And then who's
going to be in charge of that? And then how
do we tie compensation to that? So that and how
do we measure it, keep people accountable accurately and appropriately
and fairly, reward people for achievement on that, and keep
people on track. That's my basic playbook. There's a lot
(44:51):
of other details to it. That's my basic playbook. Great people,
big vision, hold people accountable, and go make it happen,
and as a result of that, you create, in all
likelihood great shareholder value.
Speaker 3 (45:03):
The book's been out for several months, has anyone, And
it's called how to Make a billion dollars?
Speaker 4 (45:08):
Right? Few billion dollars?
Speaker 3 (45:09):
How to make a few billion dollars? Sure, sometimes Tracy
and I, because we've been doing the podcast for several years,
like we'll get a email. It's like, by the way,
I just want to say I listened to this episode
and then I went to business school, and now I
got my first job on Wall Street. You've been doing
it for a while. Has anyone called you up and say, Brad,
I just want to thank you. I've made a billion
dollars since buying your book, or a few billion billion?
Speaker 4 (45:29):
Not yet, but I'll underline the word yet. But I
tell you what I have had a lot of people
like what Tracy thought experiments.
Speaker 2 (45:36):
I have imagined myself as a banana.
Speaker 4 (45:38):
It's true because the commonality of DNA between a banana
and the humane is it's quite Significant's like ninety something percent.
Speaker 2 (45:44):
It is more than you would expect. I'll say that, Brad.
There's one There's another question I want to ask you,
which is you know you're an m and a professional
serial entrepreneur. You start one company that's very successful, then
another that's very successful, and now another. How much runway
do you give yourself for each company? And when do
you declare like, Okay, I've done it here and now
(46:06):
I'm going to move on to the new thing, or
now I feel prepared to take an additional thing on.
Speaker 4 (46:10):
If you look at my bio 'es, basically every decade
I really get into something I started from scratch, this
big idea. Get everyone, we do it, do it, do it,
do it. Ten years later we did it, and I
do it again. That's my psychic Everyone's got their bio rhythm,
that's mine. Once a decade.
Speaker 3 (46:27):
Well, we'll have you back here in a decade and
you can tell us about your next venture.
Speaker 4 (46:33):
Great, it'll have x O in it.
Speaker 3 (46:37):
Sounds good, Brad Jacobs QX So thank you so much
for coming on. Odd lots, thank you, good question.
Speaker 2 (46:57):
That was our conversation with Brad Jacobs at Bloom invest
I'm Tracy Alloway. You can follow me at Tracy Alloway and.
Speaker 3 (47:04):
I'm Joe Wisenthal. You can follow me at The Stalwart.
Follow our producers Carmen Rodriguez at Carmen armand dash Ol
Bennett at Dashbot and Kelbrooks at Kelbrooks. Thank you to
our producer, Moses ondem and for our odd Lots content,
go to Bloomberg dot com slash odd lots where we
have transcripts, a blog and a newsletter. And if you
want to chat with fellow listeners, go check out our
(47:26):
discord Discord dot gg slash odd lots. And by the way,
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Speaker 2 (47:39):
One absolutely and if you enjoy all thoughts. If you
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Joe Weisenthal
Tracy Alloway
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