Odd Lots - How Brad Jacobs Will Invest $4.5 Billion to Reshape Building Supplies

Episode Date: July 2, 2024

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.See omnystudio.com/listener for privacy information.

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Saturdays and Sundays starting at 7 a.m. Eastern. Make us part of your weekend routine on Bloomberg television, radio, and wherever you get your podcasts. Bloomberg Audio Studios. Podcasts, Radio, News. Hello and welcome to another episode of the Odd Thoughts podcast. I'm Tracy Alloway. And I'm Joe Wisenthall. 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. 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 $4.5 billion. And so we wanted to learn a little bit more about how he's actually going to deploy his money. 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. 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.

Take a listen. So as Tracy mentioned before, we are here interviewing Brad Jacobs, Chairman 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. Slight correction. We've already made a class. You've already made this flash? I see you've raised a ton of money. Is that counted as a flash? So since I, first of all, thank you for invite.

Okay. Thank you for going. But since we did that podcast. We talked to Brad, I think, in December. It seems like a long time ago. Yeah. We built out the management team. Okay.

So I have 15 amazing people now, one of whom was the head of M&A at Barclays, is on Garden Leaf. And all the rest I know really well they either worked at XPO or GXO. Some company with XO in it. Yeah, it didn't have X and O in it over the next time. 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 $3.5 billion from institutional investors, mostly long only funds who know us. And now we're out there going to next stage is let's go buy some companies. Wait, so $4.5 billion raised must have. be the biggest single raise in the building industry's history. 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 letter acronyms. But like, why do they want to give you $4.5 billion or $3.5? Okay, here's the secret. I know most of the people who invest in us. It was mostly people have invested in one of the exos or done to rentals, the historical investors who did well and they're betting that we're going to do well again. So when you're talking to investors who already know you, what do they think is the Brad Jacobs playbook for creating companies? Well, as you know, I actually have a book with the playbook in there. Oh, yeah. Brad's book has also a very modest title,

which is How to Make a Few Billion Dollars. I think that's a good title, catchy title. It gets people to remember it. So the playbook is pretty straightforward. It's, first of all, talent, making sure the people in the company are amazing, are 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 honestly and disagree with each other without being a jerk,

being still nice and respectful, but honestly debates. We can get to the right decisions. It's moving fast, being decisive. and it's an M&A plate, 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&A is overpaying. That's the IC and RIC. And then integrating those businesses very thoroughly.

So we have one company, one brand that has a power in the marketplace. Okay, so one of the things we learned the last time we talked to you, I think you said across the U.S. and Europe, building products, $800 billion 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 no one big giant in the space. With $3.5 billion or $4.5 billion, 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 you'll then

consolidate? Stay tuned. I'll give you the When you get one. Give us a little. Come on. So we're not looking at tiny little companies. We're going to build a $50 billion company, 50 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 acquisitions. But more than one, do you see more than one? We're going to do more than one acquisition in the coming years. We're going to be acquitted. So it'll go start and integrate. Yeah. M&A and then integrate.

M&A, integrate. And after we integrate, we pay attention to a bunch of metrics, like customer satisfaction, employee engagement, on time performance, and so forth. And if we're humming, we're closing the books on time, get clean numbers, everyone is in good shape. Then we go back and rinse, wash, repeat,

and go buy something else. I remember every Sunday when I was growing up, my parents used to give me $10 for my allowance. It was actually $1,000, but back then, I grew up in Japan. Back then, it was about $10, 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 $4.5 billion. Do you feel a sense of urgency to spend it?

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 $4.5 billion 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, accretive deals, strategically compelling deals,

deals that make sense to do, deals that we can grow them over $5.5.5. five or 10 years and there'll be much bigger businesses at that time. 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 works? So 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's Park is doing that. Do a fantastic job. And I looked at 55 different industries. to see which one does my playbook fit that we can create some shareholder value with. And I hired two consultants who 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? Give us like a one or two pageer on.

So we put together about a thousand names to look at. And Matt Fasler and Austin Landau worked me very closely on that project. And then we paired it down, paired it down. We filtered it to about 40 names that have about $300 billion in aggregate revenue. And then we paired it down even more to the top dozen. And those are the ones that we're really focusing on them. 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, ordering a bunch of lumber, ordering HVAC equipment, whatever, it does not feel like 2024 and there's a lot of old tech. Yeah, I 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, 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? 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 we're short on, and I live in Greenwich and Connecticut, and I have friends who want to move from Manhattan, and they're having a real tough time finding a property to buy. It's very, very tight. That's not a Greenwich phenomenon.

a countrywide phenomenon. It's a phenomenon in Europe, too. We've underbuilt. And now, so that's, that's, that's, it's going to be growth. There's me growth. There's going to be, and there's it old. So most houses in America are like, the average house is like 40-something years old. Yeah. Which is old. I was, I was a kid, 10 years old, was like an old house. Someone who's living in a 15, 20 years, says, your father having a bad time? Like, what's going on? So this is old. So this is going to be repairing, remodeling, and there will be new construction. Commercial is the same thing. is actually older. Commercial is like 50 years old is a typical commercial building. And then you got

the infrastructure building, all the roads, the bridges and the tunnels. Trillions are going to have to be sent on that. So I think if you fast forward 10 years from now, high, high likelihood there's going to be more demand for building products than there is today. I think it's a, so one of the things I filtered for when I looked at those 55 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 that 10 years from now will still have some form of physical body and we'll sleep in a physical house, a physical roof, and physical windows, and physical doors. So I think there'll be more demand as a result of all that.

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Someone goes to a warehouse. How does that work? I imagine there's pen, paper, faxes, email. Yeah, you got it perfectly right. And then what's it going to look like when that same? person goes to the same distribution center, aka warehouse, and is after it's QXO-O-5. Yeah. So right now, when you talk to customers, you say, what do you think?

They generally think the industry gets about a six out of ten. Okay. You say, you know, rate 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 reasons why people only give it a, so send the follow-up question, what would make an 10?

The two main things that you hear are, you know, I order 10 things, I needed the 10 things, and I got six. 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 by a week from Tuesday. And, you know, I got it like a week late. And it costs me money. So it's very frustrating to customers to not. Now, why is this happening?

It goes to your other question. Technology. Absence of technology. So one of the companies that we spun off that I still chair is called GXO. It's the largest pure play warehouse company in the world. It's got over 200 million square feet of warehouse. It's got a thousand warehouses in a couple dozen countries. If you go 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 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. You're not stocked upright. So I think if we use tech to do proper 24 inventory management, I think we can delight customers.

I think that will differentiate us in the eyes of customers. 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? There's about a half a dozen that actually are. So Ferguson gets the joke and they're doing that. Wattsco understands this, is doing that. Builders 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 is my hypothesis. My hypothesis is, this is an industry where you get about roughly 75%ish conversion from EBITDA to free cash flow. So there's not a lot of CAPEX. It's working capital. It's not a lot of CAPEX. 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, You're in the garbage business. You're in a construct, you have high fixed costs. You have inventory.

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 who have inventory and they can't get rid of it fast enough. So they have to sell it to stress prices. It kills them. You don't see that here.

So in this industry, you don't have the Lean Six Sigma continuous improvement kinds of mindset of every day. I got to find some sofas to turn over and shake and find some nickels and some pennies and some dimes. It's not the mentality. So I think we'll bring that operational rigor, that focus on operational excellence. I think we'll bring that to the industry. There are some companies doing good job. Don't misunderstand me. I'm not casting the whole industry is doing a lousy job.

I think in general, particularly the smaller ones, they could improve. 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 cycle. Is that basically the gist here? It's a couple of things. One is having the size to be able to afford that. Yeah. And we're going to invest hundreds and hundreds of millions of dollars in the technology. If you're only doing hundreds of millions of dollars in revenue, you're not going to put hundreds of millions of dollars in a tech. But we need to do that. That's what's going to differentiate us from the have knots. That's the main thing. The second thing is it's a mindset 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.

That passion is not there. In general, some companies have it, but in general the industry doesn't have it. So Joe and Brad and maybe some odd lots 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. But you mentioned the frustration of getting supplies and having to wait ages for, you know. Did you have to wait? Yes. Did you get your order delivered in full or just in part? In part. There you go.

But okay. Okay, okay. There you go. But 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 plywood. You think that waterproof, I'm getting very specific here, you think that waterproof coating is going to be on the wood, and then maybe it's

not as good as you thought it was. That's two things. It's tech. The system should be able to track that, and there should be controls on that. And secondly, it's a cultural thing of caring. So I mentioned before that we do M&A, and then we stop and we measure a bunch of things. And one of the things we measure that I mentioned was employee engagement. You want very high levels of 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 on that. You do one of these ex-o companies like every 10 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 are where they are. They may not come down anytime soon. What is the difference today in looking at or evaluating deals in 2024 versus whatever you were buying in 2014? So let's talk about... Does that have? It's an important point. Let's talk about cost of capital. Okay. Debt is higher than it was the last 10 years because it was almost free. Yeah. So definitely is a cost of debt. But we're not going to be highly levered. We're going to lever this business, something around one to two times is our standing target. Sometimes it might go over for a short period of time in connection with an acquisition, but our target is to keep it at one to two times. Equity is not more

expensive. I mean, markets are all-time high. Yeah, that's right. Equity is okay. Equity is on the, 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 and multiples to go up or et cetera? Like, how does this current? environment affect that process? It's a dynamic market and you have a whole range of people. You have have some people saying, you know, I think it's going to get better over the next couple of years and the interest is going to come down and I'm not selling now unless you pay some really crazy high price. You have other people who say, you know what, kind of feels soft out there. Some of the public

companies have been missing their numbers recently and some of the indicators coming out. It looks like construction might be softening. 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. Tell us more about this because, of course, everyone looks at construction as a leading indicator for the economy. It's not the most leading. Transportation is more leading. Oh, wait. Okay. Talk about that, too. You definitely have a view on the economy with all the boards. You're talking to a bunch of different companies. Tell us what's happening right now. Okay. 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... You spared journalists, so thank you. Journalists haven't been bad, actually. Because journalists are providing both sides. They don't really take a few of you. They say, on the one hand, you could do this. On the other hand, it could do like that.

So I was at a CEO trade association thing a couple years ago, and you have these little slido apps where you can vote in the audience. People get their phones out and they vote. You should never do that because they'd never come back to what you're doing. And once they're on their phones. But you take a vote, and the vote was, what's the likelihood of a... severe recession, a moderate recession, no recession, growth.

Over 90% of these, you know, smart, quote-unquote CEOs, said there was either going to be a severe recession or moderate recession. Well, there's no recession. So it's hard to predict this stuff. And right now, it's much harder 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 brakes and slowing things down. So the economy is like really weird. You have it grows, but then it contracts. It's, there's a tension there. So I don't know who's going to win the arm wrestle here. So I don't know the answer is the honest answer. I don't have a firm view with strong conviction like the rest of the year is going to be stronger week.

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here's something I always wanted to ask a serial roll-uper, if you will, or a cereal. M&A person. Warren Buffett is still on my list to ask this question, but maybe one day. Call them. Just call him. Yeah, maybe I will. He takes calls. When you approach a company, how do you actually do it?

What's that initial contact like? Very straightforward. You send a DM on X slash Twitter. Why does you call somebody? I just call them up and say, hey, I'm Brad Jacobs. If you haven't heard of me, I'm trying to do some acquisitions. Have a book to sell. There you go.

$3 every time you buy. And, you know, I could have an interest in buying your company. I don't know yet. I got to learn more, but I could have an interest in, you know, the reaction usually is one or two things. It's like, look, I'm happy to meet you. It could be an interesting guy, but we're not selling the company. That's like sometimes true and sometimes baloney.

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 a spectrum of types of folks. The 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. I 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 really keep your antennas up to figure out what's true and 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 car balance. 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 to. We just, just announced one with RXO a couple of days. Well, actually, it wasn't a public coin. It's a division of a public company. It was a car route. It was coyote from U.S. Right. And the stock, the investors really like that deal. Up 20-something percent. Why buy an existing company as your sort of vehicle at all? Like, why not start from scratch and do an IPO? Is it just speed or start private? Yeah. I did the same exact thing with XPO.

If you remember back in 2011, there was a trucking company called, it was a brokerage company called Express One, which is where XPO comes from, Express One. It was trading on what was then called the Amex, American Stock Exchange, that NYSC bought. And we did a pipe. We did a pipe into the company, took control the board, moved to the headquarters to Greenwich and off to the races. We kept 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. Familiar territory for me. So repeat. 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 are getting.

Energy is not the strongest of them. Okay, but there's all the data. Data centers are huge. Electricity is huge, yeah. Are they competing with each other, like, for some of the same supplies? So, like, to what degree is the supply chain and tension? No, they're fairly segregated.

So electrical is a whole different than plumbing and HVAC and lumber and your case. They're fairly different. Are you going to be in the data, is there anything that will come through your warehouses or distribution centers that may go to data centers? 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 there.

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 Tractor Supply, Hal Lawton, and he was talking about how expensive it is to build out these 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 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. Yeah. Both those are good customers of the XPO families. I like both. I think the Walton's are invested in the new company as well, right?

No comment. Okay. Bloomberg speculation, but 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, they go direct. Yeah. You go 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 a few at the top. Question from the audience that's good. And by the way, I think there's a way to Tracy mentioned. There's a way to, there's the QR code if you want to enter in a question. There is, 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 deals and how do you balance that competition while not avoiding the winner's curse or overpaying for a company?

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. Fair price. We don't pay these trophy prices. So sometimes you see in many industries, companies, they're not really professional M&A machines. They're once in a while do a big deal.

Yeah. And they overpay. And when you overpay, it takes years and years and years to get your cost. It doesn't work in terms of creating shareholder value. If you focus is on shareholder value creation, then you need to pay a real. reasonable price in order to get good returns on that. Competition for M&A is normal. I mean, in every industry I've been in, I haven't had a monopoly on being a consolidator. Yeah.

I'm going to ask a very cliched question, but I think 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? Well, you know, it's like asking, who's your favorite kid? Like, you can't answer that. I should get Christmas cards from like most of these people have one. There's a, yeah, there are. I would say two deals. It's hard to pick which ones. So in 2015 at XPO, we did two deals.

We did Conway, which got us into LTL, and now we're an LTL behemoth. And the other one was Norbert Dantrangler, which was a French company that did contract logistics and trucking and brokerage and LTF, and different parts of that company we put with the different spins. Both of those were really good.

And both of those are really good because they gave us scale and they gave us an opportunity to apply our playbook to those businesses and dramatically improve the profitability and 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. What do you tell us more about that Conway deal? So less than truckload, carrier. When you say we applied our playbook, because that's what we're trying to understand further.

What did you do? Conway, Conway came into the house, and what did you do with it? First thing we did is we looked at the organization chart. Okay. 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 simple, simple and straightforward. Their organization chart was spaghetti thrown out of painting. You know, there's some artists who you look at the painting and say, I don't know, kind of looks like he just took a bunch of mud, put it in paint. They're on the canvas.

That's what their org chart looked like. It was very unsatisfying to look at it. And there is a correlation between the beauty of it, elegance of it, and the effectiveness of it. It's a very interesting concept. There's wasn't. And they had multiple, it was a business that had grown up Clue-G-E-style, K-L-U-G-E, meaning.

They bought some stuff, 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 at ex-kegonaut. They were more a sheepish about that. So they had three IT organizations. They had three HR organizations. The three finance accounting orders. They did three of everything. And you don't need three of everything. That's two extra than you really need. So we went in there and 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, are they kind of nice to have, but it's not really critical? Or are they like, how the heck did this get in 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 service levels up really, really high. And as a result of that, we're able to get yield growth and we're able to take market share as a result of that.

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 $1 billion of revenue right now as opposed to the end of the year? Give me a little time. We've been in the business like 10 seconds, but we'll get there. I'll satisfy you on that goal. So the biggest obstacle to achieving big goals, personally too, by the way, personally and professionally, are people.

The people that you associate with, people you surround yourself with, people you deal with all day long, the people whose exhale as you inhale and vice versa. 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, and you have to have it universally. You can't just have, like your top 25 people, you can't have like 15 or hardworking, but 10, you know, maybe they work,

maybe they don't work. You can have like 15 honest ones and 10 or dishonestly. It has to be all, in this example, 25 out of 25%. If you can concentrate on the quality of the people and the rules of being, engagement between that constellation of people, you can move mountains.

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 50 industries you looked at, what didn't happen? And so therefore there's an opportunity for someone else. So my absolute favorite one, apart from this, was oil and gas. So E&P oil and gas. So I used to be in the oil business a long time ago. And right now, right now, you can can go out and you can buy producing properties for three times cash flow. And then you have an annuity for like 15 years. And that's right today. These prices exist. Right to submit it. Right to however, you can't finance it. You just can't finance it. I went to 17 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 I said, no, no, no, don't do energy. We can't do that it's ESG or they got burnt during the boom or for whatever reason it was just like they're sellers not buyers well that makes low prices when there's not a lot of buyers and a bunch of it now similar phenomena you see in Europe sort of the analogy breaks 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 and the private equity firms is just a handful of them, whereas here in the United States, there's a couple dozen of them who are active.

Would you ever do renewables? I mean, since you brought up, renewables. Since you brought up the financing point, I mean, I don't think people are falling over themselves to finance renewables necessarily, but you don't necessarily have the mandate constrictions. Is that something you see any value in? I think green, renewable, this is all sustainability. These are long-term real trends. This is the future. This is not just a story. 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. Another question about global supply chains. And obviously we hear a lot about friend 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 with? within the context of building supplies. What are you seeing in terms of geopolitical risk hedging, maybe is the way to put it,

and the sort of changing geography of supply chains within building supply? Well, China is certainly a risk because the relationship between China and the West is probably an all-time low. So it's a very difficult time. So diversifying your supply chain away from China is probably not a bad idea.

Now, in our case, we have a very clear perimeter that we're going after. We're going after North America primarily. When I say North America. I mean, USA and a little bit of Canada, most of USA, not so much Mexico, and Western Europe, so France, Germany, Spain, so forth. That's really our perimeter, and that's about $800 billion between those two. But there must be products that you expect to come through your distribution center.

Oh, yeah. Or sorts from all over the world. 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. Is that different to how you would have maybe done this kind of business previously? Like that newfound supply chain resiliency is at the back? 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. I was a big champion for, you know, thinking globally. But the world's changed a lot in last decade. Yeah, you don't hear that much anymore. No, no, you don't. 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 proliferation 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 skews within a given amount of square footage because they can pack the warehouses in different ways and have the robots go around and stuff like that. What do you see on that? Like in your over your years of dealing with warehouses, do you, are you able to get, get a lot? 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? A warehouse managed well can be far more productive and efficient than one that's like a hardware store. So slotting, for example, SLO, TTI, N, 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 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 jigs or warehouses and you look around and go, hey, where's the people? Very quiet here. Very efficient and very, very effective what it does. That's the future, for sure. This is a question from the audience, but they're asking, because the industry is so fragmented and often, and very regional.

Is there part of the country that you're more focused on, at least initially? No. National. We want to be nationally. We want to be global. But global in the sense of Western Europe and North America, we're not really pursuing the other parts of the world.

But like people talk, for example, about, you know, this great business migration to the southeast, the southwest, et cetera. But that's not at the level there. There's a lot of, the growth rate for construction is certainly bigger down south. Wait, here's something else I always wanted to ask a roll-upper to use my previous term.

What word should she use? M&A professional. Serial entrepreneur, billionaire, I suppose would work. Don't call me a billionaire, but M&A professional. I like that. Okay, M&A professional. Thank you. But, okay, we know that you want to buy a bunch of companies.

Does the sequence that you buy them in matter? Like, 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 much. In the 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, that should be some level of opportunism and seeing what's out there and what's actionable, what's a good value. Since we're at a conference and it's the year 2024, 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 and efficient. But what specifically, what does that mean? And when we, you know, when it's at this company or some of the other exos, what does it mean to you to 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 cost? So XPO was all about machine learning and AI. When I first hired Mario Harwick for my CIO, now CEO, but when he was CIO, 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 an app the shipper would prefer to be better for the shipper to be doing on an app be better for the dispatcher and the trucker to be doing an app and why you're paying a third of your gross margin to sales reps when 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, RXO, the one that just bought Coyote from UPS, RXO is where we put the brokerage bin. Ninety-seven percent of the orders are either sourced or covered digitally. And I believe that is the main reason, not the only reason, but it's the main reason why RXO's

been growing at three times the industry growth rate, because the model works better. Are there specific pieces of technology or technology platforms that you can pull out of XPO or GXO and use for QXO? Like do you use, for instance, like those trackable pallets? Those are very cool, I find. Could you use something like that for distribution? So there's tons of stuff we could do with the XOs. We've got to be a little careful about that.

It has to all be arms length and the market and so forth. But yeah, there's tons of things that we could use from the XOs. You got to remember, this business has a big component of transportation logistics. This is a business where you're transporting building materials from the OEM, from the manufacturer, by truck, mostly a little intramo, 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. Someone asked, and perfect dovetails with your answer there, how far up and down the supply chain do go to ease bottlenecks? When you think, 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 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? 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 more often, not so much the C, more the B that's serving the C, the business that's serving the consumer. So yeah, you want to be close. That's the whole business. How do you do it? 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 them in inventory, and selling them retail in 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, we, we, but you can't blame the manufacturer, you can't 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. 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. I need treated plywood by this weekend, Brad. I know a guy.

This is bad. 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&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 where We 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. I like that one.

But you also worked, and this actually led to another Othlots 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. They ask, as you've applied various new and improved management techniques to your acquisitions, what are some old techniques that you've found have to go or just aren't very useful anymore?

So my approach of business, 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 both, we're going to be. create a $50 billion company. I've got everyone in the organization completely signed up for that. And then you figure out, what do I have to 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 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.

The book's been out for several months. Has anyone, and it's called How to Make a Billion dollars, right? A few billion dollars. How to make a few billion dollars. 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. We'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 dollars. Not yet, but I underline the word yet. But I tell you what I have had. I've had a lot of people like what Tracy has thought experiments. I have imagined myself as a banana. It's true. Because the commonality of DNA between a banana and a human is quite significant. It's like 90-something percent. 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

an M&A professional, a 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 I'm going to move on to the new thing, or now I feel prepared to take an additional thing on? If you look at my bio, it's basically every decade.

I really get into something. I started from scratch, this big idea, get everyone, do it, do it, do it. And 10 years later, we did it. And I'd do it again. That's my cycle. Everyone's got their biarrhythm. That's mine.

Once a decade. Well, we'll have you back here in a decade and you can tell us about your next venture. Great. It'll have XO in it. Sounds good. Brad Jacobs, QXO. Thank you so much for coming on Oddlod. Thank you.

That was our conversation with Brad Jacobs at Bloomberg Invest. I'm Tracy Alloway. You can follow me at Tracy Alloway. I'm Joe Wisenthall. You can follow me at the stalwart. Follow our producers, Carmen Rodriguez at Carmen Armin. Dashel Bennett at Dashbot and Kel Brooks at Kel Brooks. Thank you to our producer, Moses Andam. And for more Oddlots content, go to Bloomberg.com slash oddlots,

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