Odd Lots - Why Brad Jacobs Is Spending $11 Billion on a Roofing Supply Business

Episode Date: March 27, 2025

Brad Jacobs has made a fortune in his career buying and building big logistics companies, like United Rentals, Waste Management, XPO (trucking company), GXO (warehouses), and RXO (freight brokerage). His current venture is QXO, which raised billions of dollars in order to enter the building supply industry. After a long search and a couple months of battling with the executive team, QXO announced last week that it would be acquiring publicly traded roofing supply company Beacon Roofing for $11 billion. So why expand into roofing supply? And why Beacon specifically? We sat down with Brad to talk about the roofing industry, his vision for improving the company, what other opportunities are out there, and what he's seeing in the general economy right now. Read more:QXO Agrees to Acquire Beacon Roofing Supply in $11 Billion DealAffordable Housing Developers Stalled by Blocked Federal Funds Only http://Bloomberg.com subscribers can get the Odd Lots newsletter in their inbox each week, plus unlimited access to the site and app. Subscribe at  bloomberg.com/subscriptions/oddlotsSee omnystudio.com/listener for privacy information.

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I'm Tracy Alloway. And I'm Joe Wisenthal. Joe, 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. I tell you're like kind of a quiet year. Oh, no. Dot, no.

For big deals? Yes. Actually, this has been kind of, you know, one of the big thematic surprises of 20. to 25, obviously, when the new administration came in, there was like deals. And at least for now, I would say largely, you know, macro stuff. We actually have not gotten a big deals with so far. Right. The reason we haven't had that many deals is because there's been so much news, arguably, right? There's all this uncertainty in the broader market. So people aren't really sure what they want to do,

if they want to risk at 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 on the show before. A friend of the podcast. That's right. So Brad Jacobs, his new company, QXO, bought Beacon Roofing for, I think it was $11 billion. Is that right? So, again, an all-cash deal for $11 billion in this market, kind of notable.

We should talk about it. 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 juggernauds. We talk 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. Exactly. Okay. So let's get into the specifics. We have Brad Jacobs, billionaire founder of XPO, GXO, QXO, as I mentioned, basically all the XO companies, plus you. United Waste, lots and lots, a serial entrepreneur. Let's just put it that way. Brad, thank you so much for coming back on all thoughts. Tracy, it's great to be here. All right, so congrats on the deal. Thank you. From what I understand, this has been in the works for quite a while and there was a lot of back and forth. 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. And we said, this is like a perfect match for what we do. And unfortunately, they didn't want to sell.

So we had to do a little hostile there, but we're past that. And now we have a friendly deal and we're looking forward to closing it. Tell us about Beacon. What is the actual assets that they have that you're acquiring? So Beacon's a distributor. It's a distributor of mostly roofing, but they also do waterproofing and other incillary products, but it's mostly roofing. And what I like about that is everyone has a roof. The roofs aren't going anywhere.

They're not going into the Metaverse. They're not going to way 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 the following year in 10 years from now, there's more. So there's underlying growth. I love the simplicity. Everyone needs a roof. It's like, yeah, I actually can't argue with that. All right, keep going. Not only does everyone need a roof, but everyone has to fix their roof every once in a while. So roof's 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 business. The footprint is North America. So it's 97% United States of America, 3% in Canada. Almost everything is manufactured and sold in the U.S. And the stuff that's in Canada is manufactured for the most important. So there's not a tariff issue. Interesting. So it's an interesting business.

It's well-positioned business. And what do you plan to do with it now that you have it? 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 Dantrasongle in Europe, which is a very well-managed premier company there. We've 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. 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 like start to integrate this, start to change the business model? What is the relationship actually like with 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 marrying, 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. Learned the business.

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 good things about it that we've 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. having. We're trying to just ask those two questions. And we found 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 one to ten, with ten being the most, one being the least. And we track that. So that's the baseline. So we're going to keep survey. 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, get the engagement up, usually everything else falls in place. Whether it was your initial due diligence sort of discovering beacon or in your Zoom's post-acquiring

beacon, what are the weaknesses that you believe you convey? So I don't like the word weakness. Okay. One of the opportunities. Thank you. That's a subtle reframing, 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?

Where can we can do better under your management? 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. But such is. Give us some example. I'm going to. But I will know in a month from now. Okay. 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 said 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 mind. modify it. But let me answer 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 their value, 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 Beaking, for example, has a little over 8,000 employees. Who wants to stay? So, well, Annette, we'll 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 on that. And then we'll have a final, 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 inspired and motivated and uplifted and engaged? And if so, come out in the pool. 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 you have an intuition that the business could run as well as it is without as many employees that has. Well, I don't know that yet. It sounds like that's sort of what's implied. It's not really, not really wants to stay. 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. And most of the time, you can pair 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 of 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 to say, is this a head count 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. So, or is this something that's a nice to have? So, you know, if we have some big, extra profits. Maybe we can have have this. And then the third category is like, we really don't need 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 it? 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, like, why? Like, 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 you earn a lower price? You get a bigger rebate. For instance, United Rentals, when I bought United Rentals, 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 know, you have bigger orders with us.

And the other thing you could do is you give us more advance 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 Aerolifts and Booms and Scissors, we reduced it down to two, GNI and JLG. I think there's still the only two main vendors for aerial lifts. You're not a rentals, 20-something years later.

So we've 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 with 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. I'm Francine Lacqua, an award-winning journalist, and I've got a new podcast, leaders with Francine Lacqua from Bloomberg Podcasts. I've interviewed everyone from heads of state to fashion icons about the news of the moment. But I've always been curious who are these people as leaders.

I don't think there's one right way to be a leader. Make decisions. A poor decision is always better than no decision. Listen to new episodes every other Monday. Follow leaders with Francine Lacroix wherever you get your podcasts. You know, I mentioned in the intro that it's been relatively quiet for M&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 U.S. and Canada. I'm curious, what's the general vibe from this administration when it comes to dealmaking 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? 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 regularists. They want 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. Right. Because we don't have any existing distributors. So it's not like we had a big. 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. 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? You know, 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 of 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, 10 years from now. I think it's been a lot more here on short. 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 like 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? Well, we never confirmed that we were talking to that company publicly. Somehow, some reporter, you've got that through all the... Durned reporting and actual... ...actual journalism.

But when we were reportedly looking at that French-based company, which has a lot of... Its biggest countries in the United States, actually, when we were looking at that, we reportedly looking at that. This was still in the previous administration. There wasn't... Tariff 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 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 is 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. It was because it was such a good match. It was a match made in heaven that we should just not run away from.

Oh, yeah. 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 Hardy. 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 U.S. asset in the current environment. do you worry at all that you've overpaid after adding on, you know, pretty decent premium? 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, you know, if you pay very high multiples for companies, you know, 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've got to 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, you know, your stock's going to go down. You're comfortable with the 40% premium that you paid. 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 10 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. 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 four 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 south. 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. Joe, as proof of concept of Brad's business plan, I took delivery yesterday, my husband and I of bunch of roof shingles. Always love a crazy house update. Yeah, 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. You're welcome, Brett. 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 ones. If you could clone yourself and there were 100 bread 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 and then roll it up into 10, and then you can make it better and make a bunch of money or an HVAC company, whatever. How much opportunity is there if time for you weren't a scarce asset? So, first of all, that's a scary thought, Hunter Brad Jenkins is out there. 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 who can do that. So I'm not the only guy I can do that. Ed Breeden can do this. Larry Culpe can do this. Dave Cody can do this. There's a bunch of executives who've come out of Academy-trained organizations like Ford. I guess if there are 100 Braggios, they don't be competing in each other,

and that would drive up the price of beacon roofing even further. Anyway, we'll stick with one. Okay, yeah. Well, are you done on the deal-making front, or is this going to keep you busy for a while? Trace, this is the first one. Yeah. We're going to build a $50 billion company over the next five or six years. Well, this is actually...

Well, how quickly, though? Like, are you looking already? Absolutely. I have a deal team. We're looking at it and we're talking and we haven't even acquired Beacon. But even as we're about to acquire a 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 stops. I kind of like to do that. But when you look at M&A, MNA 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 the head of the Eminet, the nice guy. And I asked him, my challenge, 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.

You 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 where we just possibly say, you know, 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've 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&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&A. We're also going to do greenfields.

So when you Google it, you come across a lot of stuff about the M&A, like all these stories about all these 500 deals and this deal and that deal, and this is 11 billion, $11 billion, $7 billion, and $3 billion. But we really made the money on the green fields. 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 green fields. Greenfields, by that, I mean, cold starts.

Instead of buying someone, just renting or buying some leasing or buying some space and a building and hiring some people. And it's yours from day one. It's yours from day one. And you don't have it. So go back to the ROIC, Joe. The IC is a lot lower. The invested capital in a startup is much, much lower than paying 10 times even

dotted by somebody. So we're going to do those two. So we will have M&A in our game plan, but we're also going to have these greenfields. 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&A. I don't think I got one article about the greenfields.

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in every business day. Can you give us, whether we're talking about deals, a little lay of the land about market share, like how big is the space and how much market share does Beacon have and how fragmented is it and so forth? It depends how you categorize, 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.

Which are revenue? That's revenue, yes. And then you have Beacon has $2 million. 10 billion of that. So somewhere's between 15, 20% 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 had the pleasure of meet brief, at least she probably doesn't remember me,

at an event in Palm Beach that Byron Trott was having a couple 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 to 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-confidence. who's got 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 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. had 20% organic revenue growth between 2010 and 20203. 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 I got this great multiple when he sold it to Home Depot.

America is amazing. Those two companies and Beacon together have more. 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 are really strong, feisty companies. 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. So two parts to your question. 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, you're still going to, it's non-discretionary. If you have a leaky roof, you're going 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 there getting it. You're going to change your roof. You just are. But 20% of the business is with new construction. 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 counterportes from the other country. So I don't know how it's going to play out. I don't know how anyone knows how it's going to play out. That's what's very interesting about it. It's very fun times to be living in right now. Okay. This is a question we like to ask people who are actually doing stuff. So deal makers 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. So up until now, we don't close the deal until the end of April, up until now, when we've been negotiating to do the deals, they didn't want to sell. And 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 they want to sell. They were proud of their company. They had a high value expectation. They wanted to continue executing on their planet. 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 come back 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 shouldn't do it. We like the price of $124 and $35. It makes sense. We're going to be able to double the profits over time. So it works. We're buying it 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 retrad the price? Or do we just do the right thing and stick to the price? So we stuck to the price. In your life experience, does everyone have a price? Well, what do you mean by that? 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? No. Okay. Some people are just so. Some people are in principle. Well, it's not just principles.

Some people are in love with what they're doing in life, whether it's in 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 Benington College where I went to school 50 years ago, and it was 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've got harmony going on. And I've got a beginning and a middle and an end, but not much in between those things. And it just comes and say, I said, well, that's a bunch of crap, you know. You're not a musician. You're not a musician. You're not a musician. I know. All right, Brad Jacobs.

Thank you so much for coming back on all thoughts and walking us through the latest deal. Congratulations. Really a pleasure. You know, this is the only podcast I'm doing. Thank you. We're cutting this clip. We're cutting this clip and running that separately. Thank you so much, Brad.

Thank you. 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&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. You know, it was interesting? You asked Brad about the state of the economy, and it was sort of case.

about it. But then in his next question, he talked about the environment from November to now. He's like, oh, the economy slowed. He gave a little hint there that he'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. No, no, I do not know that phrase. Is this something people actually say? No, so like there's this quote, deals for 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. It's like, no, your art form is deals. It sounds like he really likes doing deals. He likes dealmaking 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? No, because I haven't seen Succession. What?

I know. Let's not talk about this. Go on. 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. Yeah. And the head of the media empire at that time, the sort of patriarch of the family says, congratulations.

on saying the bigger number. And so I always think about that when it comes down to pricing for M&A. You have to watch Succession. I can't believe it. No, no, no. That's not my thing. I really, I did really like it. You know what's interesting?

Wait, wait. How is your thing not media plus business? Let's talk about this another time. I watched it like four episodes and I was so bored. It 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. It doesn't. Anyway.

You know what I think is really 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's stat that actually 80% of the business of roofing is non-discretionary. I thought it 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 rather than new house. No one gets a new roof for fun. And I know that from experience. Yeah.

All right. Except maybe Brad, I could see it. Just to test his new roofing company. He gets a new roofing company for fun. That's right. All right. Shall we leave it there? Let's leave it there.

This has been another episode of the Alllots podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway. And I'm Joe. Weizenthal, 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 Carmen Armin, Dashel Bennett at Dashbot, and

Kale Brooks at Kail Brooks. For more odd lots content, go to Bloomberg.com slash odd lots, where we have all of our episodes and 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.org.g.g. slash odd lots. And if you enjoy Aadlots, if you like it when we talk about big deals in the market,

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