Brad Jacobs’ latest venture could be a big winner.
Brad Jacobs may not be a household name among retail investors, but Jacobs has one of the best track records of any CEO working today.
Jacobs’ first company in the US was United Waste Systems, which delivered an annual rate of return of 55% from 1989, when it was founded, until 1997, when it was sold to the company that became Waste Management. At the time, it was the fifth largest solid waste management business in North America.
After that, Jacobs co-founded United Rents and followed a similar summary strategy to deliver impressive returns in the market and become the leading equipment rental company.
In 2011, Jacobs bought a trucking broker that would become XPO Logistics for $150 million. XPO became the seventh best-performing stock of the decade in wealth 500, earning more than 3,000%. XPO spun off two other businesses, the RXO truck brokerage and GXO Logisticsa contract logistics business, which together generate more than $20 billion in annual revenue.
In his career, Jacobs has made more than 500 acquisitions, giving him plenty of experience to draw on as QXO looks to make its first deal.
Image source: Getty Images.
Jacobs’ next project
Last December, Jacobs announced his next venture. Named QXO (QXO -0.71%)it aims to apply the same summary strategy to building product distribution that has worked so well in other industries.
Like the other industries he targets, building product distribution is a massive and fragmented industry with an addressable market of around $800 billion. There are 7,000 building supply companies in North America and 13,000 in Europe. Over the next decade, QXO aims to build an industry-leading company with $50 billion in revenue a decade from now. The industry is also growing steadily at a compound annual growth rate (CAGR) of 7% over the past five years, and should benefit from a housing shortage of approximately 4 million US homes and aging housing stock.
The company has raised $5 billion to start with one or two big acquisitions, but QXO has yet to pull its foot. It acquired SilverSun Technologies in order to make it a publicly traded entity. After initially planning to spin off SilverSun, QXO later decided to keep it.
The QXO Playbook
In some ways, building supply distribution makes a lot of sense for Jacobs and his team since the business is essentially a logistics and transportation business in which the challenge is to move products in a timely and efficient manner while taking advantage of cross-selling opportunities. crossed. , and building a network of warehouses and a shipping fleet to go with it.
Like Jacobs’ past ventures, building materials distribution also offers QXO an opportunity to disrupt the market and add value through technology, as Chief Investment Officer Mark Manduca told The Motley Fool, “It’s absolutely ripe for technological innovation.” “.
Is QXO a buy?
The building supply distribution industry has already produced a number of stock market winners, although these stocks have not received nearly as much as those in some other sectors. As you can see from the chart below, five of the stocks that are generally considered industry leaders have all outperformed S&P 500 in recent years.
BLDR data from YCharts
Since QXO has yet to make an acquisition, it’s hard to judge the company’s prospects, but Jacobs’ history speaks for itself, and the chart above is a reminder that the sector has a history of outperforming the S&P 500.
With $5 billion in its war chest, QXO seems likely to make an acquisition or two that could immediately make the company a major player in the industry, unlike past ventures under Jacobs when he started smaller.
At this point, the stock is risky, but could rise to a welcome buy. Longer term, Jacobs’ expertise in roll-ups and supply-building capabilities bode well for the company. Buying a piece of stock now can offer a lot of upside potential over the next few years.
Jeremy Bowman has positions in GXO Logistics, RXO and XPO. The Motley Fool has positions in and recommends RXO. The Motley Fool recommends GXO Logistics, Waste Management and XPO. The Motley Fool has a disclosure policy.