Podcast Summary: Brad Jacobs - Think Big and Move Fast

Invest Like the Best with Patrick O'Shaughnessy features an insightful conversation with Brad Jacobs, the CEO of Positive Sum and a seasoned entrepreneur with a remarkable track record of building multibillion-dollar companies through strategic mergers and acquisitions (M&A). Released on November 22, 2024, this episode delves deep into Jacobs' investment philosophies, operational strategies, leadership principles, and personal anecdotes that have shaped his successful career.

1. Introduction to Brad Jacobs

Patrick O'Shaughnessy begins by highlighting Brad Jacobs' impressive resume:

• Founder of seven companies, all attaining billion-dollar valuations.
• Executed $500 million in transactions.
• Raised $30 billion in debt and equity capital.
• Currently serves as the Executive Chairman of XPO Logistics, a leading commercial trucking company founded in 2011.
• Authored an upcoming book titled "How to Make a Few Billion Dollars".

Brad Jacobs [05:51]: "In a word, scalability. So the only way I know to create huge value is to create a company that five and ten years after you started is much, much larger."

2. Mergers & Acquisitions Strategy

Jacobs emphasizes that scalability is the cornerstone of his business ventures, primarily achieved through strategic M&A. He seeks industries large enough to support multibillion-dollar companies, ensuring there are ample acquisition opportunities with accretive terms.

Brad Jacobs [06:56]: "I look for industries where there's synergy as you get bigger, there's economies of scale, there's benefits of size that as you buy things and get bigger, you just don't get bigger. You get better."

Key Criteria for Acquisitions:

• Scale: Target industries with hundreds of billions in revenue to support future growth.
• Synergy: Look for opportunities where combined entities offer operational efficiencies.
• Valuation: Prefer acquisitions at mid to high single-digit multiples to ensure value creation without overpaying.

3. Lessons from Early Acquisitions

Jacobs reflects on his initial forays into M&A, acknowledging numerous mistakes that provided invaluable lessons:

• Integration Speed: Early delays in integration taught him the importance of swift consolidation to maintain momentum and realize synergies.

  Brad Jacobs [08:47]: "Earlier ones taught me more lessons than my more recent ones because I messed up so many times."

• Talent Evaluation: Recognizing the significance of assessing the right people during acquisitions to ensure smooth transitions and sustained performance.

4. Evaluating Acquisition Targets

Integrity stands paramount in Jacobs' acquisition considerations. He insists on liking and trusting the sellers, believing that the seller's character is indicative of the company's future performance.

Brad Jacobs [10:23]: "First of all, I never buy a company if I don't really like the seller because I've seen a correlation between how I feel about that seller and how that deal turns out one, two, three years later."

Defining Integrity:

• Honesty: Being truthful and straightforward.
• Reliability: Followers through actions and commitments without hidden agendas.

5. Negotiating Deals & Seller Psychology

Understanding the emotional state of sellers during the sale process is crucial. Jacobs likens selling a business to "getting married," highlighting that sellers often reveal their true selves post-transaction.

Brad Jacobs [12:24]: "When people sell a business, particularly if they've spent decades building it up... they get really nervous and they get very anxious and they're very stressed out."

Negotiation Tactics:

• Empathy: Approach negotiations with understanding and respect.
• Relationship Building: Foster strong relationships to facilitate smoother deals and integrations.

6. Operationalizing M&A at Scale

Managing numerous acquisitions requires robust processes:

• Information Gathering: Comprehensive due diligence to understand both strengths and potential risks.
• Decision-Making Framework: Utilizing a four-quadrant chart to categorize deals based on size and complexity, focusing on "large, hairy deals" for maximum value.

Brad Jacobs [14:04]: "If you can shave off the hair on those big hairy deals, that's how you make a lot of money in M&A."

7. Defining a Perfect Business

Jacobs outlines the attributes of an ideal business:

• Highly Respected: Admired by industry peers.
• Customer-Valued: Customers willing to pay a premium for exceptional service and products.
• Growth Potential: Ability to increase both price and volume organically.
• High Return on Invested Capital (ROIC): Ensures efficient capital utilization and shareholder value creation.

Brad Jacobs [21:02]: "A business that has a high ROIC... will absolutely create value."

8. Valuation and Capital Allocation

Balancing acquisition pricing against business quality is critical. Jacobs maintains strict discipline on purchase prices to avoid overpaying, which can erode long-term value.

Brad Jacobs [23:31]: "If you overpay for an acquisition, you're in a hole and it may be many years of destroying value before you're creating value. That's a sin."

9. Relationship with Capital Markets

Effective communication with investors is essential. Jacobs emphasizes transparency about both successes and challenges to build trust and secure investor support.

Brad Jacobs [26:30]: "If the investment community understands what you're doing and you're truthful with them... you'll get a following."

10. Navigating Capital Market Mistakes

Jacobs candidly shares past missteps:

• Overraising Capital: Leading to dilution without immediate use.
• Underraising Capital: Missing out on lucrative acquisition opportunities.

Brad Jacobs [27:29]: "Sometimes I raised too much money, and then I didn't have a use for it right away, and then it was dilutive."

11. Strategic Share Buybacks

A notable example of Jacobs' opportunistic strategy was the massive buyback of XPO stock following a short-seller attack, resulting in significant long-term gains.

Brad Jacobs [28:16]: "We bought about $2 billion of our stock back... two years later, the stock was three times what the price was when we bought it."

12. Leadership Philosophy: Think Big and Move Fast

Jacobs advocates for a culture of ambitious vision coupled with rapid execution, ensuring teams are aligned and motivated to achieve substantial goals within limited timeframes.

Brad Jacobs [31:56]: "Think big and move fast. Things don't get better over time. Law of physics, entropy sinks in."

13. Cultivating "Electric Meetings"

To maintain high productivity and engagement, Jacobs implements dynamic meeting structures:

• Inclusive Agenda Setting: Participants contribute to the meeting agenda, ensuring relevance and buy-in.
• Focused Engagement: Strict rules against distractions to foster deep concentration and meaningful discussions.
• Respectful Disagreement: Encouraging respectful debate to explore diverse perspectives without personal attacks.

Brad Jacobs [61:02]: "The leader doesn't set the agenda for the meeting. The people set the agenda for the meeting."

14. Embracing Technology

Despite not being a technologist, Jacobs leverages technology to enhance business operations:

• Automation: Implementing AI and machine learning to streamline processes, particularly in XPO, RXO, and GXO Logistics.
• Employee-Driven Innovation: Soliciting technology-driven ideas from employees and customers to prioritize initiatives based on ROIC.

Brad Jacobs [44:14]: "Technology is critical to get right. You cannot be in a business where technology is going to disrupt you... you have to make technology your ally."

15. Personal Insights and Mentorship

Jacobs shares personal experiences that influenced his business acumen, including mentorship from Ludwig Jesselson and his long-standing practice of meditation, which incorporates thought experiments to foster creativity and strategic thinking.

Brad Jacobs [57:54]: "Thought experiments help me think differently. I want to lead teams that create huge amounts of alpha, and that requires out-of-the-box thinking."

16. Reflections on Past Ventures

Jacobs recounts his ventures in the oil industry, waste management, rentals, and logistics, highlighting how each provided unique lessons in scalability, market trends, and the importance of timely market entry.

Brad Jacobs [72:39]: "Back then, the pricing was opaque, allowing us to make strategic trades with minimal risk. Today, transparency would make the same strategy less effective."

17. Future Ambitions and Personal Goals

Looking ahead, Jacobs remains committed to building and scaling companies that generate significant shareholder value while fostering employee satisfaction. He expresses a desire to continue entrepreneurial ventures along with personal aspirations outlined in his bucket list with his wife.

Brad Jacobs [69:57]: "I want to start companies from scratch, make them multibillion-dollar enterprises, and ensure shareholders and employees benefit substantially."

18. Conclusion: The Kindest Gesture

Ending on a personal note, Jacobs shares a heartfelt story about Christian Weyer from Banc Paribas, who not only provided crucial financial support but also introduced him to his wife, underscoring the profound impact of kindness and mentorship in his life.

Brad Jacobs [86:33]: "Christian Weyer gave me a billion-dollar line of credit and introduced me to my wife. That was the kindest thing anyone's ever done for me."

Key Takeaways:

• Scalability through M&A: Jacobs' primary strategy for creating significant value centers on strategic acquisitions within large, scalable industries.
• Integrity and Relationships: Maintaining trust and strong relationships with sellers and investors is crucial for long-term success.
• Think Big, Move Fast: An ambitious vision paired with rapid execution drives sustained growth and competitive advantage.
• Technology as an Ally: Leveraging advanced technologies like AI to enhance operational efficiency and foster innovation.
• Leadership and Culture: Cultivating an environment of honesty, collaboration, and disciplined speed results in high-performing teams.
• Continuous Learning: Embracing mentorship, personal development practices like meditation, and adaptable strategies ensures ongoing success.

Brad Jacobs' journey offers a compelling blueprint for entrepreneurs and business leaders aiming to build and scale impactful, resilient companies in a dynamic market landscape.