Speaker 1: Bloomberg Audio Studios, Podcasts, Radio News.
Speaker 2: Hello and welcome to another episode of the Ad Thoughts Podcast.
Speaker 2: I'm Tracy Allaway.
Speaker 3: And I'm Joe Wisenthal.
Speaker 2: Joe, do you think it's fair to say it's been
Speaker 2: kind of kind of a quiet year for big deals.
Speaker 2: I think that's fair.
Speaker 3: I feel you're like kind of a quiet year. Oh no,
Speaker 3: dot no for big deals. Yes, actually this has been
Speaker 3: kind of, you know, one of the big thematic surprises
Speaker 3: of twenty twenty five. Obviously when the new administration came in,
Speaker 3: like deals, and at least for now, I would say,
Speaker 3: largely you know, macro stuff, we actually have not gotten
Speaker 3: a big deals with so far.
Speaker 2: Right, the reason we haven't had that many deals is
Speaker 2: because there's been so much news arguably, right, there's all
Speaker 2: this uncertainty in the broader market. Yeah, people aren't really
Speaker 2: sure what they want to do if they want to
Speaker 2: risk it all. But that said, there is some stuff
Speaker 2: getting done, and in particular, there was recently a very
Speaker 2: very big deal, a blockbuster all cash deal, some have
Speaker 2: been saying, and it involves someone who's been on the show.
Speaker 3: Before, a friend of the podcast.
Speaker 2: That's right. So Brad Jacobs, his new company, QXO, bought
Speaker 2: Beacon Roofing for I think it was eleven billion, is
Speaker 2: that right? So again, an all cash deal for eleven
Speaker 2: billion dollars in this market kind of notable. We should
Speaker 2: talk about it.
Speaker 3: I love talking to Brad. We've talked to him a
Speaker 3: handful of times on the show. Often we've talked about
Speaker 3: his philosophy of buying companies, turning them around, turning them
Speaker 3: into billion dollar juggernauts. We talked to him about logistics
Speaker 3: and supply chains. But now we can talk about something
Speaker 3: specific on how he's going to turn one specific company around.
Speaker 3: So I'm excited exactly.
Speaker 2: Okay, so let's get into the specifics. We have Brad Jacobs,
Speaker 2: billionaire founder of XPO, g XO, QXO, as I mentioned,
Speaker 2: basically all the XO companies plus United Waste, lots and lots,
Speaker 2: a serial entrepreneur, let's just put it that way. Brad,
Speaker 2: thank you so much for coming back on all lots.
Speaker 2: Trace is great to be here, all right, So congrats
Speaker 2: on the deal.
Speaker 4: Thank you.
Speaker 2: From what I understand, this has been in the works
Speaker 2: for quite a while and there was a lot of
Speaker 2: back and forth.
Speaker 4: Yeah, so before we even did Beacon. We were looking
Speaker 4: at fifty five, as you know because I was on
Speaker 4: the podcast, looking at fifty five different industries and trying
Speaker 4: to pick the one that matches our skill set, that
Speaker 4: matches our playbook, the best, the things that worked for
Speaker 4: us at all the companies that you mentioned before. And
Speaker 4: then we settled on building products distribution because we liked
Speaker 4: it a lot, the size, the growth, the fragmentation, the
Speaker 4: opportunity to apply technology. And then we zeroed in on
Speaker 4: Beacon and we said, Beacon is the one that's that's
Speaker 4: the girl I want to marry Becon and we said,
Speaker 4: this is like a perfect match for what we do,
Speaker 4: and unfortunately they didn't want to sell, so we had
Speaker 4: to do a little hostile there. But we're past that
Speaker 4: and now we have a friend, the deal and really
Speaker 4: looking forward to closing it.
Speaker 3: Tell us about Beacon, what is the actual assets that
Speaker 3: they have that you're acquaring.
Speaker 4: So Beacon's a distributor. It's a distributor of mostly roofing,
Speaker 4: but they also do waterproofing and other ancillary products, but
Speaker 4: it's mostly roofing. And what I like about that is
Speaker 4: everyone has a roof. The roof's not going anywhere they're
Speaker 4: not going into the metaverse. They're not going to weigh
Speaker 4: to AI. I mean, all structure is gonna need a roof,
Speaker 4: and there's gonna be more roofs needed next year, and
Speaker 4: the following year and the following year. In ten years
Speaker 4: now there's more, So there's underlying growth.
Speaker 3: I love this simplicit everyone needs a roof. It's like, yeah,
Speaker 3: I actually can't argue with that. All right, keep going.
Speaker 4: Not only does everyone need a roof, but everyone has
Speaker 4: to fix their roof every once in a while, so
Speaker 4: roofs break. You know, fifteen twenty years you need a
Speaker 4: new roof, and you have hurricanes and storms, and if
Speaker 4: your roof is leaking, it's not a discretionary choice. You
Speaker 4: have to fix the roof. So eighty percent of Beacon
Speaker 4: sales is non discretionary if someone needs to fix their roof.
Speaker 4: That's what I like about the business. It's a largely
Speaker 4: nondiscretion stuff foot print. The footprint is North America, so
Speaker 4: it's ninety seven percent United States of America, three percent
Speaker 4: in Canada. Almost everything is manufactured and sold in the US,
Speaker 4: and the stuff that's in Canada is manufactured for the
Speaker 4: most part, and so there's not a tariff issue. So
Speaker 4: it's an interesting business. It's a well positioned business.
Speaker 2: And what do you plan to do with it now
Speaker 2: that you have it.
Speaker 4: I'm going to double the profit the same thing we do,
Speaker 4: the same thing we did at Conway, at XPO, we
Speaker 4: double the profits in three years. Same thing we did
Speaker 4: with norber Dontresongle in Europe, which is a very well
Speaker 4: managed premier company there. We double the profits again in
Speaker 4: three years. We're gonna apply the same playbook. We're going
Speaker 4: to start with communicating and talking to all the people.
Speaker 4: And we announced the deal on Thursday morning, and at
Speaker 4: eleven o'clock we had an all employees zoom and I
Speaker 4: had the privilege and the honor and just the wonderful
Speaker 4: experience of doing the zoom with thousands and thousands of
Speaker 4: Beacon employees. And it was less me lecturing and giving
Speaker 4: a speech and more asking questions and starting to learn
Speaker 4: the business.
Speaker 2: I'm really curious this wasn't officially a hostile takeover, although
Speaker 2: as you mentioned it was, parts of it were hostile ish,
Speaker 2: let's say hostile adjacent. So when you come into a
Speaker 2: company like that that initially resisted your overtures for marriage.
Speaker 2: As you put it, does that make it difficult to
Speaker 2: actually start to integrate this, start to change the business model?
Speaker 2: What is the relationship actually like with the workers?
Speaker 4: Well, it does make it a harder start for about
Speaker 4: ten seconds, but after everyone realizes, Okay, this is done.
Speaker 4: We're buying, we're married, we're getting married here, we're engaged.
Speaker 4: We have to make this work. That's history, that's past,
Speaker 4: and the resistance is more on the senior levels. I've
Speaker 4: been doing zooms since that Thursday. All employees zoom. One
Speaker 4: of the reasons, well, the only reason my voice is
Speaker 4: horse is because I've been doing NonStop zooms. I've been
Speaker 4: doing zooms with fifteen or twenty branch managers and salespeople
Speaker 4: and others at a time for an hour two hours,
Speaker 4: learning the business and reaching out and really understanding two things,
Speaker 4: which are one, what's going great in the company that
Speaker 4: we'd be crazy to change, Like help us understand, like
Speaker 4: what's the strengths of the company that is fantastic. You know,
Speaker 4: it's a ninety seven year old company, it's a serious company.
Speaker 4: What are the good things about it there that we
Speaker 4: got to keep? And then the second question is what
Speaker 4: can we improve what can we do better? What are
Speaker 4: your needs? What are your gaps? How can we help you?
Speaker 4: And we try to keep it simple, and all these
Speaker 4: zooms and town halls we're having, we're trying to just
Speaker 4: ask those two questions. And we sound a survey to
Speaker 4: every employee at Beacon who has an email address, and
Speaker 4: we ask them those two questions. We asked them, what's
Speaker 4: working really well and what's your single best idea to
Speaker 4: improve the company. We're going to read all those thousands
Speaker 4: of responses and we ask them another question. We ask
Speaker 4: them rate your job satisfaction on a scale of one
Speaker 4: to ten, with ten being the most one being the least,
Speaker 4: and we track that. So that's the baseline. So we're
Speaker 4: going to keep surveying the employees and figure out are
Speaker 4: we doing our job in terms of making people happy.
Speaker 4: Are we doing our job of making people want to
Speaker 4: come into work every day and really loving being part
Speaker 4: of this organization. And if we take care of that,
Speaker 4: if we get them a rale up, if we get
Speaker 4: the engagement up, usually everything else falls in place.
Speaker 3: Whether it was your initial due diligence sort of discovering
Speaker 3: Beacon or in your zoom's post acquiring Beacon. What are
Speaker 3: the weaknesses that you believe you.
Speaker 4: Confess So I don't like the word weakness. Okay, what
Speaker 4: are the opportunity? Thanks. That's a subtle reforming, but it's
Speaker 4: important one because you don't want to go into a
Speaker 4: company and demortalize. People say what's wrong with you? You want
Speaker 4: to you want to talk about where can we do better?
Speaker 4: It's working, Okay.
Speaker 3: We can do better under your under your management.
Speaker 4: So the honest answer is I have a lot of hypotheses.
Speaker 4: I have a lot of ideas of things that have
Speaker 4: worked in the other companies that we've run, and this
Speaker 4: so well. But I don't totally know yet such as
Speaker 4: I'm going to do. But I will know in a
Speaker 4: month from now. And the reason I'm going to note
Speaker 4: for a month from now is we're going to get
Speaker 4: the input from thousands of thousands of Beacon employees who
Speaker 4: are in the game every day and have been in
Speaker 4: the running. So I was on a zoom with branch
Speaker 4: managers yesterday from the Northeast where I grew up, and
Speaker 4: some of those branch managers were there for thirty years,
Speaker 4: thirty five years, and we say they're very long in
Speaker 4: the tooth in this business. They get it. They've been
Speaker 4: through all the trials and tribulations, they've run the business
Speaker 4: in good times and bad times, et cetera. I'm learning
Speaker 4: from them, so we're going to modify it. But let
Speaker 4: me ask you a question. So when we go into
Speaker 4: a company, so, how did we double the profits of Conway?
Speaker 4: How do we double the profits at Norbear? It starts
Speaker 4: with the people. It starts with creating an atmosphere, a culture,
Speaker 4: a vibe in the organization where people genuinely, sincerely feel
Speaker 4: their value, they're respected, they're part of it, they're an
Speaker 4: important part of it, and they're an essential part of it.
Speaker 4: And that there's feedback loops. There's two way communication between
Speaker 4: us and every part of the organization. So we're very
Speaker 4: highly self aware organization. That's very critical. That's really the
Speaker 4: first step. The second step is figuring out okay, So
Speaker 4: like Beaking, for example, has a little over eight thousand
Speaker 4: employees who wants to stay so well, Annette will get
Speaker 4: all this input from everybody from all the town halls
Speaker 4: and the zooms and the surveys, and then we'll give
Speaker 4: a first iteration of what we heard and what we
Speaker 4: think we should do to double the profits of the company,
Speaker 4: and then we'll get more feedback and we'll get more iteration,
Speaker 4: and then we'll have a final, final plan that'll be
Speaker 4: the plan. Then we ask everybody, are you on board?
Speaker 4: Do you like the plan? Is this something you have
Speaker 4: your heart into. Is this something you want to spend
Speaker 4: your next many years of your life doing. Is this
Speaker 4: something that gets you inspired and motivated and uplifted and engaged.
Speaker 4: And if so, come out on the pool. Let's join
Speaker 4: the party. And if it's something like you know, I
Speaker 4: don't want to be part of a high performance culture.
Speaker 4: I don't want to move that fast, well.
Speaker 3: Then you know it sounds like you have an intuition
Speaker 3: that the business could run as well as it is
Speaker 3: without as many employees as it has.
Speaker 4: Well, I don't know that yet.
Speaker 3: I mean it sounds like that's sort of what's implies.
Speaker 3: I never want to he really wants to stay.
Speaker 4: No, no, no, I want to be clear about this.
Speaker 4: It's a mistake for me if I would go into
Speaker 4: a company that I bought with final conclusions before I
Speaker 4: have the information. And most of the time you can
Speaker 4: pair back the headcount mostly in the mid and upper
Speaker 4: not in the field. The field often is understaffed because
Speaker 4: companies do these rifts, they do these reductions in force,
Speaker 4: which basically is a HR speak for firing people, and
Speaker 4: they bear the brunt of the cutbacks. And sometimes you
Speaker 4: have to actually add people. You don't have enough salespeople,
Speaker 4: you don't have enough drivers, you don't have enough of
Speaker 4: basic functions. But we're not a private equity firm that
Speaker 4: goes in and just slashes and burns to try to
Speaker 4: get short term profit improvement, because that doesn't work, that's
Speaker 4: not sustainable long term. There'll be places where we need
Speaker 4: to add, there'll be places we need to subtract, and
Speaker 4: we will look. We will do a zero based, blank
Speaker 4: slate analysis of every single position, every single person, every
Speaker 4: single function, to say, is this a headcount that we
Speaker 4: must have, Like we need safety people, like, you can't
Speaker 4: cut back safety people. Is this you need a branch manager?
Speaker 4: They have six hundred branches almost, so they need six
Speaker 4: hundred branch managers. You can't reduce branch managers. So or
Speaker 4: is this something that's a nice to have, so then
Speaker 4: you know, if we have some big extra profits, maybe
Speaker 4: we can have this. But and then the third category
Speaker 4: is like we really don't need this. Somehow Goold got
Speaker 4: into the organization really doesn't belong there. And then we'll
Speaker 4: modify the organization structure. Now I don't know. I really
Speaker 4: don't know whether that'll be a radical restructuring or a
Speaker 4: minor restructuring almost nothing. I don't know yet. We got
Speaker 4: to get into it. We've been outside in until last Thursday.
Speaker 4: But we'll find out. So they answer you your earlier question.
Speaker 4: So people is the first thing. We figure out what
Speaker 4: is the plan? Who wants to be part of this?
Speaker 4: Then we figure out, okay, what are the levers, what
Speaker 4: are the steps, what are the things we got to
Speaker 4: do in order to double the profits? And then who's
Speaker 4: going to be in charge of what? And then we
Speaker 4: take the compensation programs and we align the incentives to
Speaker 4: achieving those metrics for very objective, very concrete things, so
Speaker 4: that once we know the plan and we know the levers,
Speaker 4: we can attach owners to different levers and pay them
Speaker 4: if they succeed. This is the most satisfying thing to
Speaker 4: be paying huge bonuses because the only way you're paying
Speaker 4: those huge bonuses is if you're succeeding. So that's what
Speaker 4: we're trying to do. We're trying to win. So the
Speaker 4: first step is all this people's stuff, all the people's stuff.
Speaker 4: The second step is the actual blood and guts of
Speaker 4: the business. So we're a distributor. Beacon is in the
Speaker 4: middle between a manufacturer who makes shingles and other building products,
Speaker 4: and on the other side the general contractors and the
Speaker 4: home builders who buy these things. So when you just
Speaker 4: step back and look at the business model, it's a
Speaker 4: pretty simple supply chain. So what do you have to do.
Speaker 4: You have to figure out a way that you can
Speaker 4: optimize your procurement. You have to go to your vendors
Speaker 4: and say you can't just go to your vendors and say, hey,
Speaker 4: give me exp percent discount. They're going to say, well,
Speaker 4: like why, like why should they give you better tothing?
Speaker 4: So you have to really understand what would they value,
Speaker 4: what would the OEMs, the original equipment manufacturers, what would
Speaker 4: they appreciate, and what would help them save money so
Speaker 4: you earn a lower price, you get a bigger rebate.
Speaker 4: And so for instance, United Rentals when it bought United Rentals,
Speaker 4: we started buying hundreds of companies. We went to the
Speaker 4: manufacturers of the skid steers and the generators and white
Speaker 4: towers and so forth, and we said, what do we
Speaker 4: got to do to get big discounts on the price,
Speaker 4: because we really want you know, we're bigger. How can
Speaker 4: we get a bigger discount? And they said, well, one
Speaker 4: thing you could do is you could consolidate your vendor
Speaker 4: base so that you know, you have bigger orders with us.
Speaker 4: And the other thing you could do is you give
Speaker 4: us more advanced notice that we can plan more because
Speaker 4: that would save them cost. And so we said, good,
Speaker 4: that's a great partnership. We reduced all those vendors, so
Speaker 4: for instance, area lifts and booms, the scissors, we reduced
Speaker 4: it down to two Genie and JLG. I think they're
Speaker 4: still the only two main vendors for aeral listing, not
Speaker 4: of rentals twenty something years later. So we got big
Speaker 4: discs counts and the manufacturers like, do this. We're gonna
Speaker 4: have to do a similar process with the manufacturers here.
Speaker 4: And then you have on the other end of the
Speaker 4: equation selling. So we're selling all those to customers. Are
Speaker 4: we pricing them right? Are we pricing it methodically scientifically?
Speaker 4: Are we using algorithms? Are we using technology to figure
Speaker 4: out elasticity to figure out if we raise pricing, this
Speaker 4: is how much business will lose, but this is what
Speaker 4: we'll do to profit. If we lower pricing, this is
Speaker 4: how much we will increase volume with. This is due
Speaker 4: to profit and so forth. And the third category of
Speaker 4: stuff to do, Joe is everything in the middle. Making
Speaker 4: sure our cost structure is appropriate, not too lean, but
Speaker 4: not excessive.
Speaker 2: You know, I mentioned in the intro that it's been
Speaker 2: relatively quiet for M and A and deals so far
Speaker 2: this year. I think volumes are act up slightly, but
Speaker 2: certainly we have not seen the deal boom that a
Speaker 2: lot of people were expecting with the new administration. When
Speaker 2: you announced your deal, you said you already have antitrust
Speaker 2: clearance from both the US and Canada. I'm curious what's
Speaker 2: the general vibe from this administration when it comes to
Speaker 2: deal making versus previous administrations. I know you have a
Speaker 2: very very long history of doing deals and you've seen
Speaker 2: lots of different administrations come and go. What was it
Speaker 2: like this time around.
Speaker 4: My teams and I have done over five hundred acquisitions.
Speaker 4: We've never had one deal blocked. We've had a deal
Speaker 4: here there with regulars. They why don't you promise not
Speaker 4: to raise pricing on this category of customer, or we
Speaker 4: can you divest this little part of the business. But
Speaker 4: generally speaking, we haven't had a problem with that here.
Speaker 4: It was very easy to get anti trust clearance. And
Speaker 4: by the way, it was with the previous administration that
Speaker 4: because we don't have any we don't have any existing distributor,
Speaker 4: so it's not like we had a bit we had
Speaker 4: a roofing distributor and buying a roof and distributor, and
Speaker 4: now we're going to get twice the markets here in
Speaker 4: the market where we're entering it for the first time.
Speaker 4: So there really weren't any antitrust considerations.
Speaker 3: What is it about the nature of roofing supplies such
Speaker 3: that they're still domestically made. It seems pretty good that
Speaker 3: you're entering a business in which tariff risk isn't going
Speaker 3: to be much of a risk factor for the business.
Speaker 3: Why are roofing supplies still in twenty twenty five more
Speaker 3: or less built where they're used?
Speaker 4: You know, it's just the way it worked out. It
Speaker 4: worked out over time that American manufacturers figured out a
Speaker 4: way even though we have higher labor costs than overseas
Speaker 4: countries to produce singles that the American consumer wanted, which
Speaker 4: is a little bit different. You go country to country
Speaker 4: in Europe, even they have different specs for the shingles.
Speaker 4: You go in Age, they have different specs because there's
Speaker 4: different environments, there's different climates, there's different cultural there's different appearances,
Speaker 4: there's different colors and textures and so forth. And American
Speaker 4: manufacturers did a real good job at that. Now maybe
Speaker 4: that's a good model. Maybe that's a good model for
Speaker 4: other manufacturing that went overseas over the last few decades
Speaker 4: that maybe those manufacturers need up their game and figure
Speaker 4: out what is it that's our specially, what's our strength.
Speaker 4: What is it that even with higher labor costs here
Speaker 4: in the United States, we can please the customer more.
Speaker 4: And the other advantage of American manufacturers selling in America
Speaker 4: is you don't have all this transportation costs. It costs
Speaker 4: a lot of money to move goods thousands of thousands
Speaker 4: of miles, and you also have shorter lead times because
Speaker 4: you're right here. So I actually am bullish about American manufacturing.
Speaker 4: I think American manufacturing fast forward five years from now,
Speaker 4: ten years from I think it's been a lot more
Speaker 4: here on shore.
Speaker 2: Your initial takeover target, though, was a company called Rexul,
Speaker 2: which I think is a French electric equipment supplier. Is
Speaker 2: that right, okay? And they said no, they rejected you,
Speaker 2: and you've moved on pretty quickly. Why did you change
Speaker 2: your minds on that one? Is it the case that
Speaker 2: French companies are harder to buy than American ones or
Speaker 2: are you worried perhaps about how tariffs would impact that
Speaker 2: business versus something like roofing.
Speaker 4: Well, we never confirmed that we were talking to that
Speaker 4: company publicly. Somehow some reporter got that through journalism. But
Speaker 4: when we were reportedly looking at that French based company,
Speaker 4: which has a lot of its biggest countries the United States. Actions,
Speaker 4: when we were looking at that, we're reportedly looking at that.
Speaker 4: This was still in the previous administration. There wasn't tariffs
Speaker 4: wasn't really in the air, So it really wasn't about terriffs.
Speaker 4: It wasn't that some other company was not good. The
Speaker 4: company mentions actually a really good company and has great prospects.
Speaker 4: But Beacon was perfect for us. I mean, Beacon is
Speaker 4: absolutely perfect for our particular skill set, the kind of
Speaker 4: things we do to increase the profits of a company.
Speaker 4: This applies to Beacon, which is why I did, which
Speaker 4: I is something I've only done once before in my
Speaker 4: life out of more than five hundred acquisitions, which is
Speaker 4: I did an unsolicited a takeover. We proposed an alternative slate,
Speaker 4: and we did a proxy solicitation, and it was because
Speaker 4: it was such a good match. It was a match
Speaker 4: made in heaven that we should just not run away from.
Speaker 2: Yes, speaking of this, so you raised your offer right
Speaker 2: after the initial rejection. And right now I am looking
Speaker 2: at a chart of shares of a company called James Hardy.
Speaker 2: It's an Australian company and they just announced that they
Speaker 2: were buying something and their stock has tanked because people
Speaker 2: are worried that they've overpaid for a US asset in
Speaker 2: the current environment. Do you worry at all that you've
Speaker 2: overpaid after adding on you know, pretty decent premium.
Speaker 4: Well, I'm not in the reads that deal because that's
Speaker 4: the manufacturers and I'll follow it as closely, but from
Speaker 4: what I've read, it looks like they paid something like
Speaker 4: nineteen times ibadah and we paid ten and a half
Speaker 4: times eb DA. So if you pay very high multiples
Speaker 4: for companies, you know that affects yourholder value. Now I'm
Speaker 4: not condemning that deal because I'm not knowledge enough to
Speaker 4: condemn it, but generally speaking, the price you pay matters.
Speaker 4: It matters a lot because the ROIC return on investing
Speaker 4: capital for acquisitions, the IC is the purchase price, and
Speaker 4: if you have a high purchase price, that lowers the
Speaker 4: ROI C. Your stock price is a function of your
Speaker 4: return on capital. Investors give you money debt and equity.
Speaker 4: Now you got to get a return on that. And
Speaker 4: if you overpay for acquisitions, and I'm not saying they
Speaker 4: did because I don't know enough about it, but if
Speaker 4: you're perceived to be overpaying, then you know your stock's
Speaker 4: going to go down.
Speaker 2: You're comfortable with the forty percent premium that you paid.
Speaker 4: I love the price we paid. I think the price
Speaker 4: we paid is a is a fair price. It's it's
Speaker 4: not a terribly low price, but it's certainly not a
Speaker 4: high price. And this is a price that when you're
Speaker 4: paying ten and a half times ebitdah, and that's before
Speaker 4: you double the ebadah, you know you're paying, like you know,
Speaker 4: mid single digits ebudah for a nice business that's growing,
Speaker 4: it's got long term growth to it. That eighty percent
Speaker 4: of it is nondiscretionary, that's terriff im unit and is
Speaker 4: the main reason why out of the fifty five different
Speaker 4: industries we looked at, we pick building products distribution, which
Speaker 4: is this is an industry that's got growth to it
Speaker 4: because there's a shortage of something like four million homes
Speaker 4: in the United Sates States. That's a big shortage, and
Speaker 4: it's one of the few things that both Democrats and
Speaker 4: Republicans completely agree on that we need to solve this
Speaker 4: housing crisis. This housing shortage has to be sold, so
Speaker 4: there's going to be more construction. It'll be cyclical, but
Speaker 4: over the long term arc is going to be more
Speaker 4: and more bildy. And then they're old. They're old. There's
Speaker 4: forty million homes that are over forty years old. By
Speaker 4: the way, they're all going to need to change their roofs.
Speaker 4: They're all what's called prospective customers for this business. So
Speaker 4: it's exposed to growth just for showing up and being
Speaker 4: in the game. And that's a good thing because you
Speaker 4: can do a thousand things right, but if the underlying
Speaker 4: trend is in your faces, coming the wrong way. It's
Speaker 4: tough Joe.
Speaker 2: As proof of concept of Brad's business plan, I took
Speaker 2: delivery yesterday, my husband and I of a bunch of
Speaker 2: roof shingles always love. Update was, Yeah, there we go
Speaker 2: because our insurance company says we have to replace the
Speaker 2: roof on our barn. So literally, you know, we have
Speaker 2: to have roofs and we have to do what the
Speaker 2: insurance company says.
Speaker 3: You're welcome, Brad. You've made your career sort of doing
Speaker 3: the deals like this, one after another sequentially, and unfortunately
Speaker 3: time is linear and scarce, and we only live ones.
Speaker 3: If you could clone yourself and there were one hundred,
Speaker 3: Brad Jacob, are there a lot more deals like this
Speaker 3: sitting out there that the only reason you're not doing
Speaker 3: them is because unfortunately we only have so much time.
Speaker 3: And the reason I partly ask this is because there
Speaker 3: are a lot of people in recent years x MBA's
Speaker 3: people who have told this story that there's tons of
Speaker 3: businesses out there that aren't being run at their maximal
Speaker 3: operational performance, some of the very small level.
Speaker 4: Go buy a pool.
Speaker 3: Cleaning company and then roll it up into ten and
Speaker 3: then you can make it better and make a bunch
Speaker 3: of money or an HVAC company, whatever. How much opportunity
Speaker 3: is there if time for you weren't a scarce asset.
Speaker 4: So, first of all, that's a scary thought one hundred
Speaker 4: brad Jacks. But the answer your question is yes, and
Speaker 4: note yes, there's tons of opportunities of going into companies
Speaker 4: and significantly improving the profitability of them. But no, in
Speaker 4: the sense that there's not a lot of people can
Speaker 4: do that. I'm not the only guy. I can do that.
Speaker 4: Ed Breeden can do this, Larry Kolp can do this,
Speaker 4: Dave Cody can do this. There's a bunch of executives
Speaker 4: who've come out of academy trained organizations.
Speaker 3: Like like for guess if there are one hundred Bridge Inos,
Speaker 3: they don't be competing and each other and that would
Speaker 3: drive up the price of Beacon roofing even further.
Speaker 4: Anyway, we'll stick with one.
Speaker 2: Okay, yeah, Well, are you done on the deal making
Speaker 2: front or is this going to be busy for a while?
Speaker 4: Traces is the first one. Yeah, we're going to build
Speaker 4: a fifty billion dollar company over the next five or
Speaker 4: six years.
Speaker 2: Well, this is how quickly though?
Speaker 4: Like this?
Speaker 2: Are you looking already.
Speaker 4: Absolutely I have a deal team we're looking at and
Speaker 4: we're talking and we haven't even acquired yet. But even
Speaker 4: as we're about to acquire Beacon and we're focusing on
Speaker 4: the integration and optimization, we're still looking at other deals.
Speaker 4: We have tons of capacity to do that. I don't
Speaker 4: like to do like five deals at a time, five
Speaker 4: big deals, but I actually like doing a couple deals
Speaker 4: at a time because then you do one reorganization and
Speaker 4: then you pause for a year year and a half
Speaker 4: while you're integrating and optimizing. You don't have to like
Speaker 4: start and stop. So I kind of like doing that.
Speaker 4: But when you look at M and A, M and
Speaker 4: A is gonna be a big driver for our growth here.
Speaker 4: That's in our DNA. So ten billion with Beacon gets
Speaker 4: us one fifth of where we're going to be. So
Speaker 4: it's a good start, but it's really just to start.
Speaker 4: The acquisitions that Beacon have been doing are these relatively
Speaker 4: smaller ones, and you know they do like a dozen
Speaker 4: fifteen a year. And I met with the head of
Speaker 4: the M and A, the nice guy, and I asked
Speaker 4: him my challenge him. I said, what's holding you back
Speaker 4: from doing two or three times that? He said, really
Speaker 4: nothing just hasn't been our goal. You just need a
Speaker 4: couple more people, and you know we can get going.
Speaker 4: We have the backlog, we have the relationships, we have
Speaker 4: the network. We have to know how. So I said, okay, well,
Speaker 4: I think we're going to do that, and we need
Speaker 4: to get more input and get more feedback where we
Speaker 4: just impulsively say, you know, triple amount of acquisitions you're doing.
Speaker 4: But I think that's pretty likely we're going to come
Speaker 4: out saying let's do more. Let's increase the pace of
Speaker 4: these small tucking acquisitions because the multiples are very reasonable
Speaker 4: in those small ones and the synergies are really great.
Speaker 4: Then you have not a lot, you got a couple
Speaker 4: of handfuls of medium sized ones, ones that are like
Speaker 4: fifty million of ebit DAH or two hundred and fifty
Speaker 4: million EBITDA or something in between. I want to take
Speaker 4: a real hard look at those. If we can go
Speaker 4: get those at reasonable prices, then they absolutely belong as
Speaker 4: part of us. We want to do that. But then
Speaker 4: we'll look at M and A and other verticals that
Speaker 4: are for the most part related but not roofing, but
Speaker 4: something that's in the same part of the cycle. Of
Speaker 4: the of the building cycle, and we'll do acquisitions there.
Speaker 4: So we're going to do a lot of M and A.
Speaker 4: We're also going to do green fields. So when you
Speaker 4: google me, if you come across a lot of stuff
Speaker 4: about the M and A, like all these stories about
Speaker 4: only five hundred deals in this deal and that deal,
Speaker 4: and this is eleven billion and seven billion and three billion.
Speaker 4: But we really made the money on the green fields.
Speaker 4: Wed we made the money on two things. We made
Speaker 4: the money on improving the profits of the companies we
Speaker 4: bought by sticking to the playbook and doing green fields.
Speaker 4: Green fields by that I mean cold starts just instead
Speaker 4: of buying someone, just renting or buying some leasing or
Speaker 4: buying some space and a building and hiring some people.
Speaker 3: And it's yours from day one.
Speaker 4: It's yours from day one, and you don't have it,
Speaker 4: So go back to the ROI C. Joe. The IC
Speaker 4: is a lot lower. The investor capital in a startup
Speaker 4: is much much lower than paying ten times even DOT
Speaker 4: to buy somebody. So we're gonna we're gonna do those two.
Speaker 4: So we will have M and A in our in
Speaker 4: our game plan, but we're also gonna have these green fields,
Speaker 4: and you look at you're not rentals, for example, you're
Speaker 4: not in rentals. We did two hundred some odd acquisitions.
Speaker 4: We did two hundred some odd green fields. I got
Speaker 4: a ton of press for the M and A. I
Speaker 4: don't think I got one article about the green fields.
Speaker 5: And we made a lot more money on the green fields.
Speaker 3: Can you give us, whether we're talking about deals, a
Speaker 3: little lay of the land about market share? How big
Speaker 3: is the space and how much market share does Beacon
Speaker 3: have and how fragmented is it and so forth.
Speaker 4: It depends how you categoryze, how you count it, but
Speaker 4: generally speaking, somewhere between fifteen and seventy five billion dollars.
Speaker 4: So it's not huge. It's not like a five hundred
Speaker 4: billion dollar TAM or trillion dollar TAM. But it's not
Speaker 4: insignificant either.
Speaker 1: Revenue.
Speaker 4: That's revenue, yes, and then you have Beacon has ten
Speaker 4: billion of that, so somewhere is between you know, fifteen
Speaker 4: twenty percent in that kind of range. There's two other
Speaker 4: actually very good companies, this one called ABC, which is
Speaker 4: run by this was the chaired by this amazing woman
Speaker 4: called Diane Hendrix. W Right had the pleasure of meet
Speaker 4: brief at least proably doesn't remember me at an event
Speaker 4: in Pond Beach that Byer Trot was having a couple
Speaker 4: of years ago. And this is this is a woman
Speaker 4: who's built up an amazing company. When you go to
Speaker 4: the trade shows, and I'm going a few the trade shows.
Speaker 4: They got the hottest booth, a lot of activity, there's
Speaker 4: a lot of energy there and very dynamic. It's very
Speaker 4: self confidence, got it. It looks like a really good
Speaker 4: company from the outside. And then there's another company that
Speaker 4: a very iconic entrepreneur similar to me in a lot
Speaker 4: of different ways, called Dan Tinker built up. It's called SRS.
Speaker 4: And they got backing from Leonard Green and from Berkshire Partners,
Speaker 4: and they built up a real nice company. They sold
Speaker 4: it for fifteen twenty billion dollars to Home Depot, So
Speaker 4: that's part of Home Depot. But that was also a
Speaker 4: spectacular story, I mean a real American success story where
Speaker 4: they had twenty percent organic revenue growth between ten and
Speaker 4: twenty twenty three. I've studied a lot of industries. I've
Speaker 4: been in a lot of industries. I've not seen a
Speaker 4: lot of industries where a company can have twenty percent
Speaker 4: organic revenue growth that is very impressive between price volume
Speaker 4: and green fields, not through acquisitions, organically organic revenue growth
Speaker 4: very very impressive, which is why I got this great
Speaker 4: multiple when he sold it to Home.
Speaker 3: Depot, soa is amazing.
Speaker 4: Those two companies and Beacon together have more than half
Speaker 4: of half of the industry. But then there's these other companies,
Speaker 4: these independence and these smaller companies that are smaller but
Speaker 4: are really strong, feisty companies.
Speaker 2: So people have to have roofs over their heads. As
Speaker 2: we discussed, it's not a discretionary item for most people.
Speaker 2: But at the same time, I imagine if the economy
Speaker 2: slows down, if interest rates are high, then maybe construction
Speaker 2: starts to slow and you see fewer sales of roofing,
Speaker 2: shingles or whatever. Give us your general read on economic
Speaker 2: activity right now? What are you seeing from your perspective,
Speaker 2: as you know, chairman and CEO of QXO, your first acquisition,
Speaker 2: but also taking into account all of your other many
Speaker 2: many logistics businesses.
Speaker 4: The two partially questioner. The first part is what happens
Speaker 4: to the distribution of roofing supplies and waterproofing supplies too,
Speaker 4: because that's part of the very fast growing part of
Speaker 4: this business intercession or and economics slow down. For eighty
Speaker 4: percent of what Beacon does, you're still going to it's nondiscretionary.
Speaker 4: If you have a leaky roof, you want to fix it.
Speaker 4: Whether the economy is good or bad, that's not the point.
Speaker 4: As you got rain coming down into your living room,
Speaker 4: you have buckets that are getting it. You're going to
Speaker 4: change your roof, you just are. But twenty percent of
Speaker 4: the business is with new construction, and it is discretionary
Speaker 4: something it's not just regular maintenance and there that would
Speaker 4: be affected by an economic slowdown. But the vast majority
Speaker 4: of the roofing business is non discretionary. It's it's much
Speaker 4: less sensitive to the economic cycles than other businesses I've
Speaker 4: been in. Now to the twenty percent that's more directly
Speaker 4: affected by the economy, I don't know. We're in a
Speaker 4: situation in the economy right now where I can't point
Speaker 4: to any other history where this has happened before. So
Speaker 4: I don't have a good muscle memory to say this
Speaker 4: is what's happened in the last five times we were in
Speaker 4: this situation, and therefore that's likely what happened here. We've
Speaker 4: never had the type of economic policy and the trade
Speaker 4: policy that we've got going on right now. So we're
Speaker 4: on new territory and I think it's evolving, the policy
Speaker 4: and it's changing, and then you have reactions from from
Speaker 4: the counterparty from the other countries. So I don't know
Speaker 4: how it's gonna play out. I don't know how. I
Speaker 4: don't know anyone knows how it's going to play on.
Speaker 4: That's what's very interesting about It's very fun times to
Speaker 4: be living in right now.
Speaker 2: Okay, this is a question we like to ask people
Speaker 2: who are actually doing stuff, so deal makers and people
Speaker 2: like that. But what was the hardest part of this acquisition?
Speaker 2: So I know it's still early days, but just in
Speaker 2: terms of the process so far, what did you find
Speaker 2: most challenging.
Speaker 4: So up until now, we don't close the deal till
Speaker 4: the end of April. Up until now, when we've been
Speaker 4: negotiating to do the deals, they didn't want to sell.
Speaker 4: I mean, it was just we just got the hand.
Speaker 4: We just couldn't get a conversation, couldn't get a meeting.
Speaker 4: I never met the CEO until last week. We just
Speaker 4: couldn't get a meeting, and they were reluctant to sell.
Speaker 4: So that was kind of tough to buy a company
Speaker 4: when you don't have someone on the other side who
Speaker 4: wants to meet and they want to sell. They were
Speaker 4: proud of their company, They had a high value expectation,
Speaker 4: and they wanted to continue executing on their planet. They
Speaker 4: had confidence in so that was tough. It was tough
Speaker 4: to overcome that, I felt. I felt that the right
Speaker 4: thing to do was to make them an offer and
Speaker 4: just stick to that price no matter what happened. Now,
Speaker 4: as it turned out, Tracy, between when we made them
Speaker 4: the offer, which I think was November, and as the
Speaker 4: months progressed. During the offering process, the market got worse,
Speaker 4: the economy got worse, the building products got worse, the
Speaker 4: stocks got worse, and we had people advising us saying,
Speaker 4: you know, Yota, just withdraw your offer, let their stock
Speaker 4: go down twenty to thirty bucks or whatever would have
Speaker 4: gone down and come back with a much lower price.
Speaker 4: And I really struggle with that. That's just not how
Speaker 4: we roll. And yes, we would have saved some money,
Speaker 4: but it would have been I don't know, we had
Speaker 4: ethical challenges with that. It's just not it would have
Speaker 4: hurt our reputation, and we didn't do it. We liked
Speaker 4: the price of one hundred and twenty four and thirty
Speaker 4: five cents. On hundred twenty four dollars and thirty four
Speaker 4: cents thirty five cents, it makes sense we're going to
Speaker 4: be able to double the profits over time. So it worked.
Speaker 4: We're buying it at a reasonable price. But it was
Speaker 4: it was a challenge to figure out do we play
Speaker 4: tough guy like a private equity guy would have done
Speaker 4: and retrade the price, or do we just do the
Speaker 4: right thing and stick to the price. So we stuck
Speaker 4: to the price.
Speaker 3: In your life experience, does everyone have a price?
Speaker 4: Well, what do you mean by that?
Speaker 3: You know, people are like, oh, I love this is
Speaker 3: my family, but I would never sell it, or I
Speaker 3: would never leave this job, I would never leave Bloomberg,
Speaker 3: I would never whatever. Does everyone have a price?
Speaker 4: No, some people are just so people. Principle, Well, it's
Speaker 4: not just principle. Some people are in love with what
Speaker 4: they're doing in life, whether it's in the arts, or
Speaker 4: whether it's in academia, or whether it's in business, and
Speaker 4: they just really love what they're doing. It's not a
Speaker 4: question of money. I mean, the people I know in
Speaker 4: life who are non money. People who are just not
Speaker 4: into money. They're the people I respect the most. Actually,
Speaker 4: I mean, this weekend, I sponsored the Black Music Symposium
Speaker 4: at Bennington College, where I went to school fifty years ago,
Speaker 4: and it was really exciting, and one of the musicians,
Speaker 4: are a really good musician, called me on. I said, look,
Speaker 4: I think I'm still a musician even though I'm not
Speaker 4: doing music. I'm doing business because I'm I'm still improvising.
Speaker 4: I'm still putting teams together, and I've got harmony going on,
Speaker 4: and I've got a beginning in the middle and an end,
Speaker 4: but not much in between those things. And it just
Speaker 4: comes to that, said, let's punch of crap. You know,
Speaker 4: you're not a musician, You're you're not an exist.
Speaker 2: I know, all right, Brad Jacobs, thank you so much
Speaker 2: for coming back on odd Lots and walking us through
Speaker 2: the latest deal. Congratulations, really pleasure.
Speaker 4: You know this is the only podcast I'm doing.
Speaker 3: Thank you. We're cutting this clip. We're cutting this clip
Speaker 3: and running that.
Speaker 4: Thank you so much, Brad. Thank you, Joe.
Speaker 2: That was a really interesting conversation. We don't normally do
Speaker 2: episodes about specific transactions, but I think this one was interesting,
Speaker 2: not just from a macro perspective, but just out of
Speaker 2: the broader m and a environment, as we've been discussing,
Speaker 2: kind of lackluster recently. So it was good to talk
Speaker 2: about a big deal that has actually happened.
Speaker 3: You know what was interesting You asked Brad about the
Speaker 3: state of the economy, and it was sort of cagey
Speaker 3: about it. Then in his next question he talked about
Speaker 3: the environment from November to now. He's like, oh, the
Speaker 3: economy slowed. So he gave a little hint there that
Speaker 3: he there's I mean, look, the market has sload, for sure,
Speaker 3: but a little hint about the state of the environment
Speaker 3: maybe in that answer. But I really like talking to Brad.
Speaker 3: It is fun, you know, it's interesting. Here's something really confusing.
Speaker 3: You know that phrase deals are my art form. Other
Speaker 3: people paint beautiful.
Speaker 4: No.
Speaker 2: No, I do not know that phrase. No, but it's
Speaker 2: something people actually say.
Speaker 4: No.
Speaker 3: So like, there's this quote deals from my art form.
Speaker 3: Other people paint beautifully on canvas or write wonderful poetry.
Speaker 3: I like making deals, preferably big deals. That's how I
Speaker 3: get my kicks. I always thought it was a Trump quote,
Speaker 3: but then I searched it and appurely, and Koch said it,
Speaker 3: and now I'm really confused. Anyway, I don't I don't know.
Speaker 3: It's a great phrase. But you know, hearing Brad talk
Speaker 3: about the end, it's like, I'm still a musician, and
Speaker 3: it's like, nor your art form is deals. It sounds
Speaker 3: like he really likes like.
Speaker 2: Doing you like steelmaking for sure. The other thing I
Speaker 2: was thinking, you know, we were talking about price and
Speaker 2: that forty percent premium that they're paying for Beacon, and
Speaker 2: I had that, you know, that scene from Succession in
Speaker 2: my mind.
Speaker 3: Because I haven't seen Succession. I know, let's not talk
Speaker 3: about this.
Speaker 4: Go on.
Speaker 2: Wait, wait, okay. So there's a scene where you know,
Speaker 2: they're making a bid for another company and they just
Speaker 2: throw out this insane number and the head of the
Speaker 2: media empire at that time, the sort of patriarch of
Speaker 2: the family, says congratulations on saying the bigger number. And
Speaker 2: so I always think about that when it comes down
Speaker 2: to pricing for M and A. You have to watch Succession.
Speaker 2: I can't.
Speaker 3: Oh no, no, that's not my thing. I did really
Speaker 3: like it. You know, it's interesting.
Speaker 2: Wait wait, not media plus business.
Speaker 3: Let's talk about this another time. I've watched like four
Speaker 3: episodes and I was so bored. It was like, Oh,
Speaker 3: it gets good at the eighth episode. I was like,
Speaker 3: I'm not giving that much of my life to get
Speaker 3: it into a show if it doesn't anyway. You know
Speaker 3: what I think is really interesting is a few aspects
Speaker 3: of this deal. One obvious leave that, and I didn't
Speaker 3: know this that, at least for a lot of roofing
Speaker 3: that there is this very complete domestic supply chain. But
Speaker 3: also just this idea that as the housing stock grows,
Speaker 3: you create perpetual demand even if the housing stock isn't
Speaker 3: really growing, because roofs have to be replaced. And that's
Speaker 3: stat that actually eighty percent of the business of roofing
Speaker 3: is non discretionary. I thought it was pretty interesting just
Speaker 3: thinking about like, at any given time, most of the
Speaker 3: demand for roofing equipment is existing homes that need to
Speaker 3: upgrade and fix something.
Speaker 2: No one gets a new roof for fun. And I
Speaker 2: know that from experience, right.
Speaker 3: So maybe Brad I could see it.
Speaker 2: Just to test it, gets a new roofing business, or
Speaker 2: he gets a new roofing company for fun. That's right,
Speaker 2: all right, shall we leave it there.
Speaker 4: Let's leave it there.
Speaker 2: This has been another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me at Tracy Alloway.
Speaker 3: And I'm Joe Wisenthal. You can follow me at the Stalwart.
Speaker 3: Follow Brad Jacobs you can check him out I Think
Speaker 3: on LinkedIn. Follow our producers Kerman Rodriguez at Carman armand
Speaker 3: dash Ol Bennett at Dashbot and Kale Brooks at Kalebrooks.
Speaker 3: More odd Lots content go to Bloomberg dot com slash
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