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 US company was United Waste Systems, which delivered a 55% compound annual return 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.
Jacobs then became a co-founder United on loan and pursued a similar acquisition strategy to deliver market-leading returns and become a leading equipment rental company.
In 2011, Jacobs acquired a trucking brokerage that would become XPO Logistics for $150 million. XPO became the seventh best performing stock of the decade Happiness 500, gaining more than 3000%. XPO spun off two other businesses, the RXO truck brokerage and GXO Logisticscontract logistics business that collectively generates more than $20 billion in annual revenue.
In his career, Jacobs has made more than 500 acquisitions, giving him a wealth 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%)he intends to apply the same product aggregation strategy to building product distribution that has worked so well in other industries.
Like the other industries he has targeted, building product distribution is a massive and fragmented industry with an estimated $800 billion addressable market. 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 has also been growing steadily at a compound annual growth rate (CAGR) of 7% over the past five years and should benefit from the roughly 4 million U.S. housing shortage and aging housing stock.
The company has raised $5 billion to start with one or two big acquisitions, but QXO hasn’t pulled the trigger yet. He did purchase SilverSun Technologies to make it a publicly traded company. After originally planning to spin off SilverSun, QXO later decided to keep it.
The QXO Playbook
In many ways, building supply distribution makes a lot of sense for Jacobs and his team, as the business is primarily logistics and transportation, where the challenge is to move products in a timely and efficient manner, taking advantage of cross-selling opportunities, and building a network of warehouses and a fleet of vehicles 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 gained as much as those in some other sectors. As you can see from the chart below, five of the stocks generally considered industry leaders have outperformed S&P 500 in recent years.
BLDR data from YCharts
Since QXO has yet to make an acquisition, it’s hard to gauge the company’s prospects, but Jacobs’ track record 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 previous ventures under Jacobs when he started smaller.
The stock is risky at this stage, but could jump on a well-received acquisition. Longer term, Jacobs’ build-up experience and supply-building capabilities bode well for the company. Buying a piece of stock now can offer great upside potential in the coming years.
Jeremy Bowman holds 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.