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- [00:00]
Tastytrade
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- [00:59]
Microsoft
AI is redefining what's possible for your business with more unique challenges to solve and higher stakes than ever. Microsoft helps you stay ahead. Our trustworthy AI tools and guidance can empower leaders like you to drive greater impact. And with Azure's simplified platform management, we're helping businesses go further, faster, unlocking up to 150% improved output. Whatever challenge comes next, let Microsoft help you keep pushing forward. For more details, visit Microsoft.com challengers Thrivent.
- [01:29]
Thrivent
Can help you plan your finances for the people, causes, and community you love. What makes Thrivent different? Financial services and generosity programs are combined to help you build a financial roadmap for the future, while also creating opportunities to give back along the way. Visit thrivent.com to learn more. Thrivent Where Money Means More.
- [01:51]
Bloomberg
Bloomberg Audio Studios Podcasts, Radio News.
- [02:06]
Tracy Alloway
Hello, and welcome to another episode of the Oddhots podcast. I'm Tracy Alloway.
- [02:11]
Joe Weisenthal
And I'm Joe Weisenthal.
- [02:13]
Tracy Alloway
Jo, do you think it's fair to say it's been kind of, kind of a quiet year for big deals? I think that's fair.
- [02:20]
Joe Weisenthal
I thought you were like, kind of a quiet year. Oh, no, no. For big deals, yes. Actually, this has been kind of, you know, one of the big thematic surprises of 2025. Obviously when the new administration came in, there's like, deals and at least for now, I would say largely, you know, macro stuff. We actually have not gotten a big deals wave so far.
- [02:40]
Tracy Alloway
Right. The reason we haven't had that many deals is because there's been so much News, arguably.
- [02:45]
Bloomberg
Right.
- [02:46]
Tracy Alloway
There's all this uncertainty in the broader market, so people aren't really sure what they wanna do, if they wanna risk it all. But that said, there is some stuff getting done and in particular there was recently a very, very big deal, a blockbuster all cash deal, some have been saying, and it involves someone who's been.
- [03:04]
Joe Weisenthal
On the show before, a friend of the podcast.
- [03:07]
Tracy Alloway
That's right. So Brad Jacobs, his new company QXO bought Beacon Roofing for I think it was 11 billion. So again, an all cash deal for $11 billion in this market. Kind of notable. We should talk about it.
- [03:24]
Joe Weisenthal
I love talking to Brad. We've talked to him a handful of times on the show often we've talked about his philosophy of buying companies, turning them around, turning them into billion dollar juggernauts. We talked to him about logistics and supply chains. But now we can talk about something specific and how he's going to turn one specific company around. So I'm excited.
- [03:42]
Tracy Alloway
Exactly. Okay, so let's get into the specifics. We have Brad Jacobs. Brad, billionaire founder of xpo, gxo, qxo, as I mentioned, basically all the XO companies, plus United Waste, lots and lots. A serial entrepreneur, let's just put it that way. Brad, thank you so much for coming back on Odd Lots.
- [04:01]
Brad Jacobs
Tracy, it's great to be here.
- [04:02]
Tracy Alloway
All right, so congrats on the deal.
- [04:04]
Brad Jacobs
Thank you.
- [04:04]
Tracy Alloway
From what I understand, this has been in the works for quite a while and there was a lot of back and forth.
- [04:09]
Brad Jacobs
Yeah. So before we even did Beacon, we were looking at 55, as you know, because I was on the podcast looking at 55 different industries and trying to pick the one that matches our skill set, that matches our playbook the best. The things that worked for us at all the companies that you mentioned before. And then we settled on building products, distribution because we liked it a lot. The size, the growth, the fragmentation, the opportunity to apply technology. And then we zeroed in on Beacon and we said, beacon is the one that's the girl I want to marry Beacon. And we said, this is like a perfect match for what we do. And unfortunately they didn't want to sell. So we, we had to do a little hostile there, but we're past that and now we have a friendly deal and really looking forward to closing it.
- [04:50]
Joe Weisenthal
Tell us about Beacon. What is the actual assets that they have that you're acquiring?
- [04:54]
Brad Jacobs
So Beacon's a distributor. It's a distributor, mostly roofing, but they also do waterproofing and other ancillary products. But it's mostly roofing. And what I like about that is everyone has a roof. The roof's not going anywhere. They're not going into the metaverse, they're not going away to AI. I mean, all structures are going to need a roof and there's going to be more roofs needed next year and the following year and the following year and 10 years from now, there's more. So there's underlying growth.
- [05:20]
Joe Weisenthal
I love the simplicity. Everyone needs a roof. I was like, yeah, I actually can't argue with that. All right, keep going.
- [05:24]
Brad Jacobs
Not only does everyone need a roof, but everyone has to fix their roof every once in a while. So roofs break, you know, 15, 20 years, you need a new roof and you have hurricanes and storms. And if your roof is leaking, it's not a discretionary choice. You have to fix the roof. So 80% of Beacon sales is non discretionary. Someone needs to fix their roof. That's what I like about the business. It's a largely non discretionary.
- [05:50]
Joe Weisenthal
What's the footprint?
- [05:51]
Brad Jacobs
The footprint is North America. So it's 97% United States of America, 3% in Canada. Almost everything is manufactured and sold in the US and the stuff that's in Canada is manufactured for the most part and sold there. So there's not a tariff issue.
- [06:06]
Joe Weisenthal
Interesting.
- [06:06]
Brad Jacobs
So it's an interesting business. It's well positioned business.
- [06:09]
Tracy Alloway
And what do you plan to do with it now that you have it?
- [06:11]
Brad Jacobs
I'm going to double the profit. The same thing we did, the same thing we did at Conway at XPO. We doubled the profits in three years. Same thing we did with Norbert d'Entrecagl in Europe, which is a very well managed premier company there. We doubled the profits again in three years. We're going to apply the same playbook. We're going to start with communicating and talking to all the people. And we announced the deal on Thursday morning and at 11 o'clock we had an all employee Zoom. And I had the privilege and the honor and just the wonderful experience of doing a Zoom with thousands and thousands of Beacon employees. And it was less me lecturing and giving a speech and more asking questions and starting to learn the business.
- [06:51]
Tracy Alloway
I'm really curious. This wasn't officially a hostile takeover, although as you mentioned, it was, parts of it were hostile ish, let's say hostile adjacent. So when you come into a company like that that initially resisted your overtures for marriage, as you put it, does that make it difficult to actually start to integrate this, start to change the business model? What is the relationship actually, like with.
- [07:16]
Brad Jacobs
The workers, well, it does make it a harder start for about 10 seconds. But after everyone realizes, okay, this is done, we're buying, we're married, we're getting married here, we're engaged, we have to make this work. That's history, that's past. And the resistance is more on the senior levels. I've been doing zooms since that Thursday, all employees zoom. One of the reasons my, well, the only reason my voice is horses, because I've been doing nonstop zooms. I've been doing Zooms with 15 or 20 branch managers and salespeople and others at a time for an hour, two hours, learning the business and reaching out and really understanding two things, which are one, what's going great in the company that we'd be crazy to change, like, help us understand, like what's the strengths of the company? That is fantastic. You know, it's a 97 year old company, it's a serious company. What are the, the good things about it that we got to keep? And then the second question is, what can we improve? What can we do better? What are your needs? What are your gaps? How can we help you? And we try to keep it simple. In all these zooms and town halls we're having, we're trying to just ask those two questions. And we sent a survey to every employee at Beacon who has an email address. And we asked them those two questions. We asked them what's working really well and what's your single best idea to improve the company. We're going to read all those thousands of responses. And we asked them another question. We asked them, rate your job satisfaction on a scale of 1 to 10, with 10 being the most, one being the least. And we track that. So that's the baseline. So we're going to keep surveying the employees and figure out, are we doing our job in terms of making people happy? Are we doing our job of making people want to come into work every day and really loving being part of this organization? And if we take care of that, if we get the morale up, if we get the engagement up, usually everything else falls in place.
- [09:04]
Joe Weisenthal
Whether it was your initial due diligence, sort of discovering Beacon or in your Zooms post acquiring Beacon, what are the weaknesses that you believe you can fix?
- [09:15]
Brad Jacobs
So I don't like the word weakness.
- [09:17]
Joe Weisenthal
Okay, opportunity.
- [09:20]
Brad Jacobs
That's a subtle refrain, but it's an important one because you don't want to go into a company and demoralize people and say, what's wrong with you? You want to Talk about where can we do better? What's working? Okay.
- [09:31]
Joe Weisenthal
Where can begin to do better under your management?
- [09:34]
Brad Jacobs
So the honest answer is I have a lot of hypotheses, I have a lot of ideas of things that have worked in other companies that we've run and did so well, but I don't totally know yet.
- [09:44]
Joe Weisenthal
But such as give us.
- [09:46]
Brad Jacobs
I'm going to, but I will know in a month from now. And the reason I'm going to know from a month from now is I'm going to get the input from thousands of thousands of Beacon employees who are in the game every day and have been in the running. So I was on a zoom with branch managers yesterday from the Northeast where I grew up. And some of those branch managers were there for 30 years, 35 years. And we say they're very long in the tooth in this business. They get it. They've been through all the trials and tribulations, they've run the business in good times and bad times, et cetera. I'm learning from them. So we're going to modify it. But let me ask you a question. So when we go into a company, so how did we double the profits at Conway? How do we double the profits at Norbert? It starts with the people. It starts with creating an atmosphere, a culture, a vibe in the organization where people genuinely sincerely feel they're valued, they're respected, they're part of it, they're an important part of it and they're an essential part of it. And that there's feedback loops, there's two way communication between us and every part of the organization. So we're very highly self aware organization. That's very critical. That's really the first step. The second step is figuring out, okay, so like Beacon, for example, has a little over 8,000 employees. Who wants to stay? So Annette will get all this input from everybody, from all the town halls and the Zooms and the surveys. And then we'll give a first iteration of what we heard and what we think we should do to double the profits of the company. And then we'll get more feedback and we'll get more iteration and then we'll have a final plan. That'll be the plan. Then we ask everybody, are you on board? Do you like the plan? Is this something you have your heart into? Is this something you want to spend your next many years of your life doing? Is this something that gets you in, inspired and motivated and uplifted and engaged? And if so, come out in the pool. Let's join the party. And if it's something like, you know, I don't want to be part of a high performance culture, I don't want to move that fast. Well, then, you know, it sounds like.
- [11:37]
Joe Weisenthal
You have an intuition that the business could run as well as it is without as many employees as it has.
- [11:43]
Brad Jacobs
Well, I don't know that yet.
- [11:44]
Joe Weisenthal
I mean, it sounds like that's sort of what's applied, like who really wants to stay.
- [11:49]
Brad Jacobs
No, no, no. I want to be clear about this. It's a mistake for me. If I would go into a company that I bought with final conclusions before I have the information. Most of the time you can pare back the headcount. Mostly in the mid and upper, not in the field. The field often is understaffed because companies do these rifts. They do these reductions in force, which basically is a HR speak for firing people. And they bear the brunt of the cutbacks. And sometimes you have to actually add people. You don't have enough salespeople, you don't have enough drivers, you don't have enough basic functions. But we're not a private equity firm that goes in and just slashes and burns to try to get short term profit improvement. Because that doesn't work, that's not sustainable long term. There'll be places where we need to add, there'll be places we need to subtract and we will look. We will do a zero based blank slate analysis of every single position, every single person, every single function and say, is this a headcount that we must have? Like we need safety people. Like you can't cut back safety people is this. We need a branch manager. They have 600 branches almost. So they need 600 branch managers. You can't reduce branch managers. Or is this something that's nice to have something if we have some big extra profits, maybe we can have this. And then the third category is like, we really don't need this. This somehow got into the organization, really doesn't belong there. And then we'll modify the organization structure. Now I don't know. I really don't know whether that'll be a radical restructuring or a minor restructuring. Almost nothing, I don't know yet. We got to get into it. We've been outside in until last Thursday, but we'll find out. So that's your earlier question. So people is the first thing we figure out, what is the plan? Who wants to be part of this? Then we figure out, okay, what are the levers, what are the steps? What are the things we got to do in order to double the profits, and then who's going to be in charge of what? And then we take the compensation programs and we align the incentives to achieving those metrics for very objective, very concrete things, so that once we know the plan and we know the levers, we can attach owners to different levers and pay them if they succeed. It's the most satisfying thing to be paying huge bonuses because the only way you're paying those huge bonuses is if you're succeeding. So that's what we're trying to do. We're trying to win. So the first step is all this people stuff, all the people stuff. The second step is the actual blood and guts of the business. So we're a distributor. Beacon is in the middle between a manufacturer who makes shingles and other building products, and on the other side, the general contractors and the home builders who buy these things. So when you just step back and look at the business model, it's a pretty simple supply chain. So what do you have to do? You have to figure out a way that you can optimize your procurement. You have to go to your vendors and say, you can't just go to your vendors and say, hey, give me X percent discount. They're going to say, well, why? Why should I give you better? So you have to really understand what would they value, what would the OEMs, the original equipment manufacturers, what would they appreciate and what would help them save money so that. So you earn a lower price, you get a bigger rebate. And so, for instance, the United Rentals, when I bought United Rentals and we started buying hundreds of companies, we went to the manufacturers of the skid steers and the generators and light towers and so forth, and we said, what do we got to do to get big discounts on the price? Because we really want, you know, we're bigger, how can we get a bigger discount? And they said, well, one thing you could do is you could consolidate your vendor base so that you have bigger orders with us. And the other thing you could do is you give us more advanced notice so we can plan more because that would save them cost. And so we said, good, that's a great partnership. We reduced all those vendors. So for instance, in aerialifts and booms and scissors, we reduced it down to 2. Genie and JLG. I think they're still the only two main vendors for aerial lifts, not in rentals 20 something years later. So we got big discounts and the manufacturers like doing this. We're going to have to do a similar process with the manufacturers here. And then you have on the other end of the equation selling. So we're selling all those to customers. Are we pricing them right? Are we pricing it methodically, scientifically? Are we using algorithms? Are we using technology to figure out elasticity, to figure out if we raise pricing, this is how much business will lose, but this is what will do to profit. If we lower pricing, this is how much we'll increase volume, this due to profit, and so forth. And the third category of stuff to do, Joe, is everything in the middle. Making sure our cost structure is appropriate. Not too lean, but not excessive.
- [16:40]
Tastytrade
Old trading walks into a bar. New trading raises it. Unlike some guys, Tastytrade puts traders first. Maybe you're the type to hunker down on your desktop for hours. Maybe you breeze by on your browser. Or maybe you just need that top rated app right by your side. However you do it, tastytrade's got the advanced tools you need to tackle stocks, options, futures and more all in one place. Chart your heart out with over 300 indicators. See opportunity differently with interactive curve analysis. Use backtesting to learn from the past and plan for the future. The platform is only the beginning of better trading. You'll also find low pricing, lots of education and backup from a support team that really gets how traders trade. It's no wonder Investopedia named tastytrade the best broker for options in 2024. Genius loves company, so get moving at tastytrade.com RideWithUs tastytrade Inc. Is a registered broker, dealer and member of finra, NFA and sipc.
- [17:39]
Thrivent
Thrivent can help you plan your finances for the people, causes and community you love. What makes Thrivent different? A combination of financial services and generosity programs, Thrivent offers advice, investments, insurance, banking and generosity, as well as resources to fund service, projects or direct dollars to causes you care about. With more than 120 years serving clients, you can plan your finances with confidence. Visit thrivent.com to learn more. Thrivent where money means More people endure.
- [18:09]
Bloomberg
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- [19:09]
Tracy Alloway
Know, I mentioned in the intro that it's been relatively quiet for M and A and deals so far this year. I think volumes are actually up slightly, but certainly we have not seen the deal boom that a lot of people were expecting with the new administration. When you announced your deal, you said you already have antitrust clearance from both the US And Canada. I'm curious, what's the general vibe from this administration when it comes to deal making versus previous administrations? I know you have a very, very long history of doing deals and you've seen lots of different administrations come and go. What was it like this time around?
- [19:50]
Brad Jacobs
My teams and I have done over 500 acquisitions. We've never had one deal blocked. We've had a deal here or there with regulators. They wanted you to promise not to raise pricing on this category of customer or can you divest this little part of the business. But generally speaking, we haven't had a problem with that here. It was very easy to get antitrust clearance. And by the way, it was with the previous administration that because we don't have any existing distributors. So it's not like we had a roofing distributor and we're buying a roofing distributor and now we're going to get twice the market share in a market where we're entering it for the first time. So there really weren't any antitrust considerations.
- [20:24]
Joe Weisenthal
What is it about the nature of roofing supplies such that they're still domestically made? It seems pretty good that you're entering a business in which tariff risk isn't going to be much of a risk factor for the business. Why are roofing supplies still in 2025 more or less built where they're used?
- [20:42]
Brad Jacobs
It's just the way it worked out. It worked out over time that American manufacturers figured out a way, even though we have higher labor costs than overseas countries, to produce shingles that the American consumer wanted, which is a little bit different. You go country to country in Europe, even they have different specs for the shingles, you go in Asia, they have different specs because there's different environments, there's different climates, there's different cultural, there's different appearances, there's different colors and textures and so forth. And American manufacturers did a real good job at that. Now, maybe that's a good model, maybe that's a good model for other manufacturing that went overseas over the last few decades, that maybe those manufacturers need to up their game and figure out what is it that's our specialty, what's our strength, what is it that even with higher labor costs here in the United States, we can please the customer more? And the other advantage of American manufacturers selling in America is you don't have all this transportation costs. It costs a lot of money to move goods thousands and thousands of miles. And you also have shorter lead times because you're right here. So I actually am bullish about American manufacturing. I think American manufacturing, fast forward five years from now, ten years from now, I think it's going to be a lot more here onshore.
- [21:50]
Tracy Alloway
Your initial takeover target, though, was a company called Rexell, which I think is a French electric equipment supplier. Is that right? Okay. And they said no, they rejected you, and you moved on pretty quickly. Why did you change your minds on that one? Is it the case that French companies are harder to buy than American ones? Or are you worried perhaps about how tariffs would impact that business versus something like roofing?
- [22:17]
Brad Jacobs
Well, we never confirmed that we were talking to that company publicly. Somehow some reporter got that through.
- [22:23]
Joe Weisenthal
All darned reporting and actual, actual journalism.
- [22:27]
Brad Jacobs
But when we were reportedly looking at that French based company, which has a lot of its biggest countries in the United States, actually. But when we were looking at that, we were reportedly looking at that. This was still in the previous administration. There wasn't tariffs, wasn't really in the air. So it really wasn't about tariffs. It wasn't that some other company was not good. The company you mentioned is actually a really good company and has great prospects. But Beacon was perfect for us. I mean, Beacon is absolutely perfect for our particular skill set, the kind of things we do to increase the profits of a company. This applies to Beacon, which is why I did, which I something I've only done once before in my life out of more than 500 acquisitions, which is I did an unsolicited takeover. We proposed an alternative slate, and we did a proxy solicitation. And it was because it was such a good match. It was a match made in heaven that we should just not run away from.
- [23:16]
Microsoft
Oh, yeah.
- [23:17]
Tracy Alloway
Speaking of this. So you raised your offer right after the initial rejection. And right now I am looking at a chart of shares of a company called James Hardie. It's an Australian company and they just announced that they were buying something and their stock has tanked because people are worried that they've overpaid for a US asset in the current environment. Do you worry at all that you've overpaid paid after adding on pretty decent premium?
- [23:46]
Brad Jacobs
Well, I'm not in the weeds of that deal because that's a manufacturer, so I don't follow it as closely. But from what I've read, it looks like they paid something like 19 times EBITDA and we paid 10 and a half times EBITDA. So if you pay very high multiples for companies, that affects shareholder value. Now I'm not condemning that deal because I'm not knowledgeable enough to condemn it. But generally speaking, the price you pay matters. It matters a lot because the ROIC return on invested capital for acquisitions, the IC is the purchase price. And if you have a high purchase price that lowers the roic. Your stock price is a function of your return on capital. Investors give you money, debt and equity. Now you gotta get a return on that. And if you overpay for acquisitions, and I'm not saying they did because I don't know enough about it, but if you're perceived to be overpaying, then your stock's gonna go down.
- [24:37]
Tracy Alloway
You're comfortable with the 40% premium that you paid.
- [24:39]
Brad Jacobs
I love the price we paid. I think the price we paid is a fair price. It's not a terribly low price, but it's certainly not a high price. This is a price that when you're paying ten and a half times ebitda, and that's before you double the ebitda, you're paying like mid single digits. EBITDA for a nice business that's growing, it's got long term growth to it. That 80% of it is non discretionary. That's tariff immune and is the main reason why out of the 55 different industries we looked at, we picked building products distribution, which is, this is an industry that's got growth to it. Because there's a shortage of something like 4 million homes in the United States. That's a big shortage and it's one of the few things that both Democrats and Republicans completely agree on that we need to solve this housing crisis. This housing shortage has to be solved. So there's going to be more construction. It'll be cyclical, but over the long term ARC is going to be more and more building and then they're old. They're old. There's 40 million homes that are over 40 years old, by the way. They're all going to need to change their roofs. They're all what's called prospective customers for this business. So it's exposed to growth just for showing up and being in the game. And that's a good thing because you can do a thousand things right, but if the underlying trend is in your face, it's coming the wrong way. That's tough.
- [25:58]
Tracy Alloway
Joe. As proof of concept of Brad's business plan, I took delivery yesterday, my husband and I, of a bunch of roof shingles.
- [26:06]
Joe Weisenthal
Always love a crazy house. Update.
- [26:07]
Bloomberg
What's up?
- [26:08]
Tracy Alloway
There we go. Because our insurance company says we have to replace the roof on our barn. So literally, you know, we have to have roofs and we have to do what the insurance company says.
- [26:19]
Joe Weisenthal
You're welcome. Brad, you've made your career sort of doing deals like this one after another, sequentially. And unfortunately, time is linear and scarce and we only live once. If you could clone yourself and there were a hundred Brad Jacobs, are there a lot more deals like this sitting out there that the only reason you're not doing them is because unfortunately we only have so much time. And the reason I partly ask this is because there are a lot of people in recent years, ex MBAs, people who have told this story that there's tons of businesses out there that aren't being run at their maximal operational performance, some at the very small level. Go buy a pool cleaning company and then roll it up into 10 and then you can make it better and make a bunch of money or an H Vac company, whatever. How much opportunity is there if time for you weren't a scarce asset?
- [27:13]
Brad Jacobs
So first of all, that's a scary thought. Hundred Brad Jenkins out there, but. But the answer to your question is yes and no. Yes, there's tons of opportunities of going into companies and significantly improving the profitability of them, but no in the sense that there's not a lot of people that can do that. So I'm not the only guy who can do that. Ed Breeden can do this. Larry Culp can do this. Dave Cody can do this. There's a bunch of executives who've come out of academy trained organizations like, like Ford.
- [27:39]
Joe Weisenthal
I guess if there are a hundred Bridge Eagles, they'd all be competing against each other and that would drive up the price of beacon roofing even further.
- [27:46]
Brad Jacobs
Anyway, we'll stick with one okay.
- [27:47]
Joe Weisenthal
Yeah.
- [27:48]
Tracy Alloway
Well, are you done on the deal making front or is this going to keep you busy for a while?
- [27:53]
Brad Jacobs
Tracy is the first one. Yeah, we're going to build a $50 billion company over the next five or six years.
- [27:58]
Joe Weisenthal
Well, this is.
- [27:59]
Tracy Alloway
How quickly though, are you looking already?
- [28:02]
Brad Jacobs
Absolutely. I have a deal team we're looking at and we're talking and we haven't even acquired Beacon yet. But even as we're about to acquire Beacon and we're focusing on the integration and optimization, we're still looking at other deals. We have tons of capacity to do that. I don't like to do like five deals at a time, five big deals, but I actually like doing a couple deals at a time because then you do one reorganization and then you pause for a year, year and a half while you're integrating and optimizing. You don't have to like start and stop. So I kind of like doing that. But when you look at M and A, M and A is going to be a big driver for our growth here. That's in our DNA. So 10 billion with Beacon gets us one fifth of where we're going to be. So it's a good start, but it's really just a start. The acquisitions that Beacon have been doing are these relatively smaller ones and they do like a dozen 15 a year. And I met with head of the M and a nice guy, and I asked him, I challenged him, I said, what's holding you back from doing two or three times that? He said, really nothing. It just hasn't been our goal. I just need a couple more people and we can get going. We have the backlog, we have the relationships, we have the network, we have the know how. So I said, okay, well, I think we're going to do that and we need to get more input and get more feedback before we just impulsively say triple amount of acquisitions you're doing. But I think that's pretty likely. We're going to come out saying, let's do more. Let's increase the pace of these smaller tuck in acquisitions because the multiples are very reasonable on those smaller ones and the synergies are really great. Then you have not a lot. You got a couple handfuls of medium sized ones, ones that are like 50 million of EBITDA or 250 million EBITDA or something in between. I want to take a real hard look at those. If we can go get those at reasonable prices, then they absolutely belong as part of us. We want to do that. But then we'll look at M and A and other verticals that are for the most part related, but not roofing, but something that's in the same part of the cycle of the building cycle. And we'll do acquisitions there. So we're going to do a lot of M and A. We're also going to do greenfields. So when you Google me, you come across a lot of stuff about the M and A. Like all these stories about all these 500 deals and this deal and that deal and this is 11. 11 billion and 7 billion and 3 billion. But we really made the money on the greenfields. We made them. We made the money on two things. We made the money on improving the profits of the companies we bought by sticking to the playbook and doing greenfields. Greenfields. By that I mean cold starts. Just instead of buying someone, just renting or buying some, leasing or buying some space and a building and hiring some people.
- [30:26]
Joe Weisenthal
And it's yours from day one.
- [30:27]
Brad Jacobs
It's yours from day. And you don't have the. So go back to the roic, Joe. The IC is a lot lower. The investor capital in a startup is much, much lower than paying 10 times the EBITDA to buy somebody. So we're going to do those two. So we will have M and A in our, in our game plan, but we're also going to have these green fields. And you look at United Rentals, for example. United rentals. We did 200 some odd acquisitions. We did 200 some odd greenfields. I got a ton of press for the M and A. I don't think I got one article about the greenfields. And we paid a lot more money on the greenfields.
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- [33:42]
Joe Weisenthal
Talking about deals, a little lay of the land about market share, how big is the space and how much market share does Beacon have and how fragmented is it and so forth?
- [33:52]
Brad Jacobs
It depends how you count it, but generally speaking it's somewhere between 50 and $75 billion. So it's not huge. It's not like a $500 billion TAM or a trillion dollar TAM, but it's not insignificant either.
- [34:04]
Joe Weisenthal
Beacon revenue.
- [34:05]
Brad Jacobs
That's revenue. And then you have Beacon has 10 billion of that. So somewhere between, you know, 15, 20% in that, in that kind of range. There's two other actually very good companies. There's one called ABC, which is run by this was chaired by this amazing woman called Diane Hendricks, who I had the pleasure to meet briefly. She probably doesn't remember me at an event in Palm beach that Byron Trott was having a couple of years ago. And this is a woman who's built up an Amazing company. When you go to the trade shows and I've gone a few of the trade shows, they got the hottest booth, a lot of activity, there's a lot of energy there. It's very dynamic, it's very self confident. It looks like a real good company from the outside. And then there's another company that a very iconic entrepreneur, similar to me in a lot of different ways, called Dan Tinker built up, it's called srs and they got backing from Leonard Green and from Berkshire Partners and they built up a real nice company. They sold it for 15, 20 billion dollars to Home Depot. So now it's part of Home Depot. But that was also a spectacular story. I mean a real American success story where they had 20% organic revenue growth between 2010 and 2023. I've studied a lot of industries, I've been in a lot of industries. I've not seen a lot of industries where a company can have 20% organic revenue growth. That is very impressive between price, volume and greenfields, not through acquisitions, organically organic revenue growth, very, very impressive. Which is why he got this great multiple when he sold it to Home Depot.
- [35:32]
Joe Weisenthal
America is amazing.
- [35:33]
Brad Jacobs
Those two companies and Beacon together have more than half of the half of the industry. But then there's these other companies, these independents and these smaller companies that are smaller but really strong, feisty companies.
- [35:47]
Tracy Alloway
So people have to have roofs over their heads. As we discussed, it's not a discretionary item for most people. But at the same time, I imagine if the economy slows down, if interest rates are high, then maybe construction starts to slow and you see fewer sales of roofing shingles or whatever. Give us your general read on economic activity right now. What are you seeing from your perspective as chairman and CEO of qxo, your first acquisition, but also taking into account all of your other many, many logistics businesses.
- [36:22]
Brad Jacobs
So two parts to your question there. The first part is what happens to the distribution of roofing supplies and waterproofing supplies too, because that's part of the very fast growing part of this business. In a recession or an economic slowdown, for 80% of what Beacon does, it's non discretionary. If you have a leaky roof, you want to fix it, whether the economy is good or bad. That's not the point. The point is you got rain coming down into your living room. You have buckets that are getting it. You're going to change your roof, you just are. But 20% of the business is with new construction and it is discretionary. It's something it's not just regular maintenance and there that would be affected by an economic slowdown. But the vast majority of the roofing business is non discretionary. It's much less sensitive to the economic cycles than other businesses. I've been in now to the 20% that's more directly affected by the economy. I don't know. We're in a situation in the economy right now where I can't point to any other history where this has happened before. So I don't have a good muscle memory to say this is what's happened the last five times we were in this situation and therefore that's likely what happened here. We've never had the type of economic policy and the trade policy that we've got going on right now. So we're on new territory and I think it's evolving the policy and it's changing. And then you have reactions from the counterparties from the other countries. So I don't know how it's going to play out. I don't know anyone knows how it's going to play out. That's what's very interesting about. It's very fun times to be living in right now.
- [37:48]
Tracy Alloway
Okay, this is a question we like to ask people who are actually doing stuff. So dealmakers and people like that. But what was the hardest part of this acquisition? So I know it's still early days, but just in terms of the process so far, what did you find most challenging?
- [38:04]
Brad Jacobs
So up until now, we don't close the deal till the end of April. Up until now when we've been negotiating to do the deals, they didn't want to sell. I mean, it was just, we just got the hand. We just couldn't get a conversation, couldn't get a meeting. I never met the CEO until last week. We just couldn't get a meeting. And they were reluctant to sell. So that was. It's kind of tough to buy a company when you don't have someone on the other side who wants to meet with you, want to sell. They were proud of their company. They had a high value expectation and they wanted to continue executing on their plan that they had confidence in. So that was tough. It was tough to overcome that. I felt that the right thing to do was to make them an offer and just stick to that price no matter what happened. Now as it turned out, Tracy, between when we made them the offer, which I think was November, and as the months progressed during the offering process, the market got worse, the economy got worse, the building products got worse, the stocks got worse. And we had people advising us, saying, you know, you ought to just withdraw your offer, let their stock go down 20 or 30 bucks or whatever. It would have gone down and, and come back with a, with a much lower price. And I really struggle with that. That's just not how we roll. And yes, we would have saved some money, but it would have been, I don't know, we had ethical challenges with that. It's just not. It would hurt our reputation. And we just, we didn't do it. We like the price of 124 and 35 cents. $124.34, 35 cents. It makes sense. We're going to be able to double the profits over time. So it works. We're buying at a reasonable price. But it was a challenge to figure out, do we play tough guy like a private equity guy would have done and retrade the price, or do we just do the right thing and stick to the price? So we stuck to the price.
- [39:40]
Joe Weisenthal
In your life experience, does everyone have a price?
- [39:44]
Brad Jacobs
Well, what do you mean by that?
- [39:46]
Joe Weisenthal
You know, people are like, oh, I love. This is my family bid. I would never sell it or I would never leave this job. I would never leave Bloomberg. I would never. Whatever. Does everyone have a price?
- [39:55]
Brad Jacobs
No. Some people are just so.
- [39:57]
Joe Weisenthal
Some people have principles.
- [39:59]
Brad Jacobs
Well, it's not just principles. Some people are in love with what they're doing in life, whether it's in the arts or whether it's in academia or whether it's in business. And they just really love what they're doing. It's not a question of money. I mean, the people I know in life who are non money people, who are just not into money, they're the people I respect the most, actually. I mean, this weekend I sponsored the Black Music Symposium at Bennington College where I went to school 50 years ago. And it was just really exciting. And one of the musicians, who's a really good musician, called me out, I said, look, I think I'm still a musician. Even though I'm not doing music, I'm doing business because I'm still improvising, I'm still putting teams together and I'm got harmony going on and I've got a beginning and a middle and an end, but not much in between those things. And H's comments, well, that's a bunch of crap. You know, you're not a musician. You're not a musician.
- [40:43]
Joe Weisenthal
You're not, you're not a musician. I know.
- [40:47]
Tracy Alloway
All right, Brad. Brad Jacobs, thank you so much for coming Back on odd lots and walking us through the latest deal. Congratulations.
- [40:53]
Brad Jacobs
Really a pleasure. You know, this is the only podcast I'm doing.
- [40:55]
Tastytrade
Thank you.
- [40:56]
Joe Weisenthal
We're cutting this clip. We're cutting this clip and running that separately. Thank you so much, Brad.
- [41:00]
Brad Jacobs
Thank you.
- [41:13]
Tracy Alloway
Joe. That was a really interesting conversation. We don't normally do episodes about specific transactions, but I think this one was interesting, not just from a macro perspective, but just out of the broader M and A environment, as we've been discussing kind of lackluster recently. So it was good to talk about a big deal that has actually happened.
- [41:35]
Joe Weisenthal
You know what was interesting? You asked Brad about the state of the economy, and he was sort of cagey about it. But then in his next question, he talked about the environment. From November to now, he's like, oh, the economy slowed. So he gave a little hint there that he. There's. I mean, look, the market has slowed, for sure, but a little hint about the state of the environment maybe in that answer. But I really like talking to Brad. It is fun. You know what's interesting? Here's something really confusing. You know that phrase, deals are my art form? Other people paint beautiful?
- [42:10]
Tracy Alloway
No.
- [42:10]
Brad Jacobs
No.
- [42:10]
Tracy Alloway
I do not know that phrase.
- [42:11]
Brad Jacobs
No.
- [42:12]
Tracy Alloway
But is it something people actually say?
- [42:14]
Joe Weisenthal
No. So, like, there's this quote, deals are my art form. Other people paint beautifully on canvas or write wonderful poetry. I like making deals, preferably big deals. That's how I get my kicks. I always thought it was a Trump quote, but then I searched it, and apparently Ed Koch said it, and now I'm really confused. Anyway, I don't know. It's a great phrase, but, you know, hearing Brad talk about the end, it's like, I'm still a musician. And it's like, no, your art form is deals. It sounds like you're. He really likes doing steel.
- [42:39]
Tracy Alloway
He likes steel making, for sure. Well, the other thing I was thinking, you know, we were talking about price and that 40% premium that they're paying for Beacon, and I had that, you know, that scene from Succession in my mind.
- [42:52]
Joe Weisenthal
No, Because I haven't seen Succession. I know. Let's not talk about this.
- [42:56]
Tastytrade
Go on.
- [42:56]
Tracy Alloway
Wait, wait, wait. Okay, so there's a scene where, you know, they're making a bid for another company and they just throw out this insane number. And the head of the media empire at that time, the sort of patriarch of the family, says, congratulations on saying the bigger number.
- [43:13]
Joe Weisenthal
Yeah.
- [43:13]
Tracy Alloway
And so I always think about that when it comes down to pricing for M and A, you have to watch Succession. I can't believe.
- [43:19]
Joe Weisenthal
No, no, that's not my thing. I really, I did really like it. You know, it's interesting.
- [43:24]
Tracy Alloway
Wait, wait, no.
- [43:26]
Joe Weisenthal
Can we talk about this another time?
- [43:27]
Tracy Alloway
Not Media plus Business.
- [43:30]
Joe Weisenthal
Let's talk about this another time. I watched like four episodes and I was so bored. I was like, oh, it gets good. At the eighth episode I was like, I'm not giving that much of my life to get into a show if it doesn't. Anyway, you know what I think is really interest interesting is a few aspects of this deal. One, obviously that, and I didn't know this, that at least for a lot of roofing, that there is this very complete domestic supply chain. But also just this idea that as the housing stock grows, you create perpetual demand even if the housing stock isn't really growing because roofs have to be replaced. And that stat that actually 80% of the business of roofing is non discretionary. I thought was pretty interesting just thinking about like at any given time, most of the demand for roofing equipment is existing homes that need to upgrade or fix something random.
- [44:21]
Tracy Alloway
No one gets a new roof for fun. And I know that from experience. Yeah, all right.
- [44:25]
Joe Weisenthal
Except maybe Brad.
- [44:26]
Tracy Alloway
I could see it just to test.
- [44:28]
Joe Weisenthal
He gets a new roofing company or he gets a new roofing company for fun.
- [44:31]
Tracy Alloway
That's right. All right, shall we leave it there?
- [44:33]
Joe Weisenthal
Let's leave it there.
- [44:34]
Tracy Alloway
This has been another episode of the OVL Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.
- [44:39]
Joe Weisenthal
And I'm Joe Weisenthal. You can follow me at the Stalwart. Follow Brad Jacobs. You can check him out, I think, on LinkedIn. Follow our producers, Carmen Rodriguez at carmenarmond, Dashiell Bennett at Dashbot and Kalebrooks @ Kalebrooks. For more Odd Lots content, go to bloomberg.com oddlots we have all of our episodes in a daily newsletter and if you want to chat with fellow listeners 24. 7 about topics including things like residential construction, go to our Discord Discord GG Oddlots.
- [45:10]
Tracy Alloway
And if you enjoy Odd Lots, if you like it when we talk about big deals in the market, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg Channel on Apple Podcasts and follow the instructions there. Thanks for.
- [46:02]
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