QXO

Is QXO Brad Jacobs next multi bagger roll-up?

Thesis Overview

Brad Jacobs has a 40 year track record of building successful roll-ups. His newest project, QXO, is a building materials distributor roll-up that was recently formed. His intention is to scale the company through rapid acquisitions and utilize technology to help improve the business model and economics.

Brad is well known as a serial entrepreneur in industrial services. Once every 10 years or so, he forms a company that he uses as a platform to consolidate a niche, fragmented industry through disciplined M&A. He did this in waste management, equipment rentals, logistics, and now he is doing it in building distribution. Historically he’s had a high success rate and created a lot of value for shareholders.

I imagine that most QXO investors understand they are betting on Brad to sort of “work his operational magic”, which naturally makes the investment a bit more speculative in nature.

However, given his track record, one could argue it’s likely that Brad’s new project will create value for shareholders. In this article I want to discuss his history, strategy, the building materials industry and where I think QXO could go from here.

For those who don’t have time. to read the entire article, this is my thesis;

I think QXO is a bit over valued here at around $20, but can still perform well if Brad really executes and there are no major headwinds. My base case assumes QXO reaches its ~$50 billion revenue run-rate target by 2032, 13x multiple and 13% EBITDA margins = a share price around $48, implying something like a 13% - 14% IRR. Note: there’s a lot of guess work involved here so do your own diligence. Higher margins and/or multiple is certainly plausible.

Brads track record

There are various sources to learn more about Brad Jacobs biography and track record starting with this page and this page. There are also interviews available on YouTube.

Here is a summary.

Big Wins

These are wins under his track record.

• Amerex Oil Associates (1979-83) Jacobs co-founded an oil brokerage firm. This laid the groundwork for his consolidation and capital-markets approach. Jacobs started with a small loan and grew it to $4.7 billion contract volume in just a few years. He sold it successfully in 1983 for a massive profit. This was his “seed capital” for everything that followed.

• United Waste Systems (1989-97)

  Jacobs founded United Waste Systems, focused on consolidating small waste-collection companies. Brad rolled up over 200 local waste companies and it became the fifth largest U.S. waste-management business by the time he sold it. It was sold to Waste Management for $2.5 billion. The stock outperformed the S&P by 5.6x.¹

Big Wins but with a few difficulties

• United Rentals (1997 onward) In September 1997, Jacobs founded United Rentals, a massive equipment rental roll-up that would become a huge industrial compounder over the years. Jacobs executed around 250 acquisitions in the first few years, buying up small equipment rental dealers to rapidly become the world’s largest equipment-rental provider and one of the best, if not the best performing industrial stock of the last decade and a half (+15,000%). I you had the gamblers itch, you could have bought shares during the financial crisis for ~$5-$6, each share is now worth ~$800+. However, this one is not without a few scars. In the late 1990s, he made a massive bet on highway construction, anticipating a government funding boom (TEA-21 bill). The funding was delayed, and the company lost $500 million almost overnight.² He owned up to it, took the loss and immediately went to work disposing of assets. The stock underperformed for years but eventually became an incredible compounder.
  

• XPO Logistics (2011 onward) In 2011, Jacobs invested $150 m into Express-1 Expedited Solutions, a tiny freight company, and grew it rapidly into XPO through M&A and internal expansion. The stock producing a 50x return for investors at the end of 2024 ³. XPO began with ~$177 million in revenue, and just 5 years later it was doing ~$14 billion in revenue and ~$1.2 billion in adjusted EBITDA⁴. However, it wasn’t all rainbows and unicorns for XPO, this company also went through tough seasons between difficult integrations and corporate bloat. Initially, Jacobs wanted to build a single, integrated global logistics giant. However, after buying companies in Europe and the US for years, he realized the conglomerate was complex and too hard for investors to value or appreciate. He made the pivot by spinning off GXO (Pure-play contract logistics) and RXO (Freight brokerage). The result was great for XPO as it became a focused LTL comparable to Old Dominion, Saia, and Estes, and the market finally values it like accordingly. The stock is up ~400% since 2022.

Mixed outcome

• Hamilton Resources (1984-89) Founded a global oil trading firm. He grew it to ~$1 billion in revenue before quitting the oil business entirely to find a new challenge that was so volatile. This venture was a mixed outcome, he didn’t fail financially, he just disliked the industry. He reportedly exited with capital and lessons, but this wasn’t a home-run like some of his other ventures. He learned risk management, liquidity discipline, and cyclicality, lessons he used heavily at United Rentals and XPO.⁵

Analyzing His track record

I’m not including RXO and GXO in his track record because they’re newly founded companies and neither were meant to be his next “big project”. They were spun-off because they were masking the value of XPO. They could make good investments, but to my knowledge Brad is not focused on them.

In total, he has acquired 500 companies across 4 industries in his 40-year career, which is impressive to say the least.⁶ The way I think about his record is that he had incredible success in 4/5 of the major ventures that he was involved with, and most importantly, zero catastrophic failures. I estimate he has created ~$40 billion in equity value in his career (~$25B from URI, ~$2.5B United Waste, ~$12B XPO, ~$0.5B Amerex and Hamilton). Although not profiled in the book, one could argue that Jacobs fits the archetype of the uniquely talented business leaders laid out in William Thorndike’s famous book, The Outsiders. He treats capital deployment as his primary job and understands that per-share value creation is the purpose of his entire strategy/philosophy.

His strategy

Brad Jacobs operates a strategy that utilizes the mechanics of a private equity (PE) roll-up model. It’ essentially “private equity roll-up in public markets” because brad uses public markets as his permanent limited partner base. When researching a new market to roll-up, he spends a substantial amount of time finding his next industry, looking for inefficient, tech-lacking, fragmented markets. Once identified, he buys undervalued, under-optimized companies, then aggressively improves them, and focuses on returns on capital.

He leans heavily on the duel-engines of organic and inorganic growth. Interestingly, he is known for his M&A but hasn’t been given much credit for his organic operations, which have contributed greatly.

Organic

For companies like United Rentals or QXO that operate branch networks, growing new branches organically (Greenfields) often produces higher returns on capital because they require less invested capital.

“From an ROI standpoint, the “IC” (invested capital) in a startup is much lower than paying 10x EBITDA to buy somebody.

So we’ll do both M&A *and* greenfields. For example, at United Rentals, we did 200-plus acquisitions and 200-plus greenfields. I got tons of press for the M&A. I don’t think I got one article about the greenfields—and we made a lot more money on the greenfields.”

-Brad Jacobs, Bloomberg Odd Lots Podcast

For QXO, he will build new distribution centers if it’s cheaper than buying or there’s no target available in a particular region. By building from scratch, QXO can deploy the latest technology, optimize layout, staffing, supply-chain flows, and culture from day one. This reduces integration drag, and helps ensure that new locations hit target KPIs more predictably.

Inorganic

The other big component is growth through acquisition, and Jacobs appears to be acutely aware that value is only created when the return on capital exceeds the cost of capital in acquisitions.

He deploys a mixed acquisition strategy consisting of both big and small acquisitions. He typically does a big deal when staring a new company, then later he’s does a mixture of smaller and medium sized deals, occasionally a larger one. Large transactions can be complex and require deep operational restructuring, but he’s disciplined and careful not to overpay in these situations. More importantly, Brad value’s the targets based on how much the acquired business can be improved.

QXO recently released a transcript detailing fifteen specific things Brad has done since acquiring Beacon. Reading through it, I think one can get a sense of his general approach, especially for large acquisitions.

Below are some key parts to his strategy with QXO/Beacon. I think this largely reflects his general approach and investors can expect something similar going forward.

1. Rebrand

2. Organizational redesign: Flatten organization structure so that there is only 4 layers of management between CEO and front line, rather than 9 layers. This is a classic integration move often used in private equity to cut bureaucracy and increase accountability.

3. Internal alignment: They also begin a blank slate analysis of every position and implement new large long term equity incentives tied to total shareholder return. Brad has boasted that thousands of employees have become millionaires, and many “people who have made tens of millions and there is one person who made over $100 million.”⁷

4. Technology Implementation: Many of the companies that will be acquired under QXO are far from modernized and will be brought up to speed by implementing systems and upgrading the entire technology stack (CRM, ERP, WMS, TMS, and pricing engines). They are also working to embed ai into workflows.

5. Pricing Discipline: In fragmented, low-tech distribution industries like building products, sales reps often have no discipline, offering discounts they shouldn’t, misapplying promotional prices, or granting exceptions to close a deal quickly, resulting in “revenue leakage”. This can be minimized by installing one unified system that controls prices, discounts and rules, margin targets and price floors.

6. Procurement optimization: Centralizing procurement and consolidating terms across the top vendors is key. Newly consolidated branches will not be dealing with vendors individually but instead buying under one unified contract to maximize discounts. By focusing on top vendors, QXO ensures maximum impact (max volume) with minimum effort.

7. Sales Enhancement: Redefining sales roles and hiring “hunters” to win new customers and reactivate dormant accounts, alongside establishing a national call center called the “Win Room“

8. Inventory/Logistics: Replace existing, likely outdated systems for managing fleet of trucks with a modern, centralized software platform to ensure every truck trip is as efficient and cost-effective as possible.

QXO/ Beacon details

The company was formed through an overhaul of an existing public company, SilverSun Technologies, and fueled by a huge cash infusion from Brads’ firm and its partners. QXO raised about US$1 billion in equity capital with ~US$900 M from Jacobs via his investment vehicle, and the rest from outside investors. The $1.0 billion equity investment was done primarily in convertible preferred shares, QXO issued 1,000,000 shares of Convertible Perpetual Preferred Stock and Warrants.

QXO completed its first acquisition in April 2025 of Beacon Roofing Supply for US$11 billion. It is targeting the ~$800 billion U.S. building-products distribution industry.

There isn’t really anything special about the roofing industry except that it can often be non-discretionary work. You get a leak, you fix it, end of story. 80% of Beacons’ revenue is tied to non-discretionary repair and remodel, and the other 20% is tied to new construction, which is more cyclical. I think this is the direction QXO will likely go. Below you can see how the asphalt r&r market held up during the great financial crisis.

Source: Beacon 2024 investor presentation.

They don’t detail revenue by product, but asphalt singles are most certainly Beacons’ biggest-selling product. 80% of homes in America have this particular roofing, and it will remain that way for a long time. Shingles are cheap and easy to install, and need to be replaced about every 15-20 years. Roofs in the sun belt and “hail alley” states need to be replaced every 5-10 years due to increased UV rays and storms. Despite the high frequency of replacement, shingle roofing continues to dominate these markets due to its low price, durability, and broad availability. Metal and clay tile roofs often last a lifetime but cost much more.

The roofing distribution industry is fragmented with widespread operational leakage, unsophisticated procurement, poor inventory management and according to Jacobs, it’s “way behind on tech”. Procurement scale is probably the biggest driver here as it makes up the largest part of COGS for any distributor. Because distributors buy and sell products, procurement costs make up the bulk of COGS. A tiny improvement in procurement costs almost entirely converts into profit because fixed costs don’t budge. A 1% change in COGS can result in an outsized increase in operating income and EBITDA.

Companies like Grainger, Fastenal, Ferguson, Sonepar, Watsco are proof that industrial distributors can be fantastic business models that compound for decades when executed well.

Management incentives/ownership

Ownership

Brad owns 49% of the common stock (via JPE) with 31% voting power, giving him the right to nominate 40% of the Board. His equity stake is worth around ~$7 billion. This tells you pretty unambiguously that Brad is aligned with shareholders and he controls the company. QXO is the leanest, purest control structure Brad has ever built, even more so than XPO and URI which had more members and shared much more power with Apollo and other investors through a coalition.

The board structure mirrors private equity style governance with a smaller board (7 rather than 9-12) consisting of handpicked operators and a few finance specialists (Landry, Aiken). It’s designed for decisiveness, speed and accountability. The board even has a few geopolitical members such as Mary Kissel, Marlene Colucci, Jared Kushner, indicating that QXO likely aims to be a global, politically aware, cross-border acquirer.

Cash compensation

Brads cash compensation (salary+ bonus) is very low relative to his ownership, and it only scales if he grows QXO into a massive revenue giant. His base salary increases depending on the annualized revenue run-rate at each year-end:

His cash bonus also increases a maximum of 200% ($3.4 million) only if he reaches the upper end of the target (>$30 billion run rate).

Equity incentives

Brad was granted 3.8 million RSUs and 7 million PSUs. These are huge awards but come with long vesting, strict performance hurdles, and no ability to sell until 2029. The RSU’s are time based and the last 25% vest in 2029, and the PSU’s are tied to total shareholder return vs S&P 500.

Overall, his compensation and ownership is very good. It’s exactly what investors should be looking for in management.

Valuation

Valuing QXO is difficult because the future acquisition path is unknown, margins will change meaningfully, mix will likely shift beyond roofing, and the speed of the roll-up is unknown. What follows is my best guess.

Brad is known to outperform and achieve goals sooner than anticipated, but that does not imply that everything will go smoothly. United Rentals went nowhere for over a decade after its IPO because in its early years it was a highly levered cyclical rental company with low free cash flow and share dilution. Let’s hope QXO is not follow this path.

Brads goal is to build a ~$50 billion revenue distribution business “within the next decade” implying sometime before 2035. This is on key variable.

Most peers have EBITDA margins in the 10% - 15% range, with the premium distributors doing north of 15%. Brad will be able to improve margins, but QXO must operate within the limitations of the distribution industry. I wouldn’t be surprised to see mature margins around 13% - 14% at some point in the future. I couldn’t find commentary on the exact margin target from management. I would love to hear from anyone who knows.

Most peers also trade within the 10x - 15x EBITDA range. Below are a few peers.

Valuation Assumptions

NOTE: I corrected the original post because I didn’t assume as much dilution as I should have, therefore the FDSO has been increased to 1,475B shares.

Assumptions

• I assume QXO achieves ~$50 billion in sales sometime between 2031 - 2035. No sooner than 5 years and no later than 9.

• I also assume a margin of 11% - 14%. Current EBITDA margin sits near 11%, which is already up, and management intends to continue expanding them.

• I assume a multiple of 9x - 15x.

• I also calculated the fully diluted shares to be 1.475 billion (Common stock 674.4m + Convertible perpetual preferred 219m + Warrants 219m + Convertible mandatory preferred 33.8m + stock awards 29.4m = total 1175.6). This includes all potential dilutive shares, even anti-dilutive shares that are not included currently under GAAP EPS rules. In addition to this, 300 million additional shares for equity financing. More on dilution below.

• Net leverage 2x, which is the highest end of management target.

Share dilution will likely be going forward. Brad typically front loads with equity financing and then switches to debt later on in the business life cycle and then begins buying back shares. I’ve already included some of the initial massive front-loaded equity financing which will dilute shareholders in the future, but there may be more. If we use Beacon as the example, I think the best way to think about the additional equity capital that will be required is that roughly 4.3 more “Beacon-sized” ($8.75B EV) acquisitions will be required to reach the $50B target, although in reality they will likely be smaller acquisitions than Beacon.

Assuming 35%-40% equity financing, this means something like $13-$15 billion in equity capital will be required. Assuming a $35-$45 price when issued, this could mean an additional 300 million shares or more, or 1,475 total fully diluted shares outstanding.

Below is a table showing different scenarios and my base case scenario is 13x and 13% EBITDA margin = $48.5 share price. There is another table beside it to the right showing my base case IRR over different periods. In other words, If QXO pulls this off in 5 years with 13% margins, and the stock trades at 13x, the rate of return would be 18%, and if in 9 years, 10%.

Again, I’m spitballing here, and I could be way off, so do you own diligence.

Brad could knock the ball out of the park, or he may strike out. I don’t know.

Across United Waste, United Rentals, XPO, Brad shows a somewhat similar cadence; hyper growth in the early years and slower margin rich growth in later years.

So given that QXO already has an $11B revenue starting point, I think revenue growth could play out something like this;

• ~$0-$25B in years 1-3 (2024-2027) hyper growth

• ~$25B-$45B in years 3-6 (2027-2030) 21% CAGR

• ~$45B-$55B in years 7-10. (2030-2034) 7% CAGR

If my underlying base case assumptions are correct, (13% margin x 13x EBITDA) and QXO reaches $50 billion in revenue in about 7 years, that’s a 13% IRR. Not bad, but not fantastic either.

Should the stock fall down to $15 or less, or multiple be higher, the upside would be much more compelling. I think the stock has been bid up a bit at 20x EBITDA, but this just reflects investor confidence in Brad Jacobs.

Risks

1. Execution risk: This is the single biggest risk. Brad is the thesis, therefore Brad needs to perform. If he doesn’t, the thesis is gone.

2. Cyclicality: Roofing is somewhat cyclical, should there be a deep recession you can most certainly count on some revenue pressures, especially revenues that flow from new construction. However, If QXO continues to focus on the repair and remodel market, cyclicality would be minimized.

Final thoughts

QXO is early, unproven, and built around a founder, so this is more speculative by nature. But few founders in industrial America have created more value or have more repeatable, time-tested playbooks than Jacobs.

Many funds have gone long, in size, and a number of them appear to be long only funds with low turnover, implying they could be in it for the long haul. I personally own some shares at around $19 and would consider buying more. I recently sold out of Skyward Insurance, trimmed my Vistra and PayPal positions and am shoring up some extra cash and may commit some of it to QXO if there is an opportunity to buy lower.

Thanks for reading.

Disclaimer: Nothing I say should be taken as financial advice. None of my financial models should be taken as buy or sell signals. Please consult a financial advisor before buying or selling any securities.

Full disclosure: I am a QXO 0.00%↑ shareholder at the time this was written.

1. https://www.asimplemodel.com/insights/billion-dollar-entrepreneur#:~:text=In%201984%2C%20Mr.,chief%20operating%20officer%20through%201989.

2. https://www.danielscrivner.com/how-to-make-a-few-billion-dollars-the-hard-won-lessons-building-7-multi-billion-dollar-businesses-by-brad-jacobs/#:~:text=When%20Congress%20allocated%20%24600%20billion,you%20wish%20it%20to%20be.

3. https://www.jpe.com/?7ea45187_page=2#:~:text=Jacobs%20subsequently%20led%20the%20%247,approximately%20200%20million%20square%20feet.

4. https://investors.xpo.com/static-files/61d94ec7-c221-40fa-97d6-a16efe0746c2 https://investors.xpo.com/static-files/ee5f89b2-db7a-4854-adbd-bf48078b6ad3

5. https://www.asimplemodel.com/insights/billion-dollar-entrepreneur#:~:text=In%201984%2C%20Mr.,chief%20operating%20officer%20through%201989.

6. https://www.jpe.com/?7ea45187_page=2#:~:text=Jacobs%20subsequently%20led%20the%20%247,approximately%20200%20million%20square%20feet.

7. https://www.freightwaves.com/news/xpos-jacobs-on-his-next-venture-wait-and-see#:~:text=He%20boasted%20that%20there%20are,who%20made%20over%20%24100%20million.”