Sorry I must have not hit send on my reply! QXO is really a pure play backing great management. They have yet to make an acquisition but this will just be riding the coat tail of Brad Jacobs. I feel really good about that considering his past incredible successes.
Last November, QXO (QXO) made an offer to acquire Beacon Roofing Supply (BECN).
QXO’s CEO, Brad Jacobs, had approached Beacon’s leadership 15 times throughout the year, but each attempt was either ignored or rejected. It wasn’t until mid-January that the proposal became public.
In response to these rejections, Jacobs took his $11 billion takeover bid directly to shareholders, offering to purchase shares at a premium—approximately $124 per share.
This hostile tender offer triggered an immediate countermeasure from Beacon’s management: a swift implementation of a poison pill.
How this unfolds remains uncertain. However, if QXO is determined to acquire Beacon, the poison pill could significantly increase the final price they must pay.
For those unfamiliar with a poison pill, it’s a defensive strategy that allows existing shareholders to buy additional shares at a discount if a hostile bidder surpasses a certain ownership threshold. This tactic dilutes all shareholders, including the hostile bidder, forcing them to acquire even more shares at a higher cost. As a result, QXO could end up paying well beyond its initial offer.
I never understood hostile takeovers. If you buy a company, you need the existing management to be onside. You want them to stay on to help with the transition. Ideally there will be an earn-out to keep them motivated.
Now consider the hostility that exists with a hostile takeover. Making that a success is infinitely more difficult.
Why would anyone pursue that kind of M&A?
I never understood it.
M&A is difficult enough at the best of times. Many fail to deliver the intended benefits, and that's even when everyone is pulling in the same direction.
How can it succeed when everyone is pulling in different directions?
Just took a quick read on this one. Looks like an interesting one to follow. I see that BECN rejected the offer by QXO last week. Brad Jacobs has done some good work over the years. I will have to perhaps take a dive into their SEC filings.
I don't think it has actually gone through yet but it looks like a great target. They are a quality company with high operating leverage which should be the dream scenario for Brad Jacobs.
They will likely have to issue shares for it to go through which isn't ideal but in the end Jacobs has a history of success and I don't expect anything different. I will definitely follow closely if it goes through!
Great question here. There is the potential they issue more stock and dilute shareholders. However with Brad Jacobs history he has a track record of creating value for shareholders. Meaning if he issues shares, for every $1 he gets he creates more than $1 of value.
For QXO though I don't expect them to issues shares anytime soon. Brad is a fantastic operator and would likely only do so when he knows it makes sense not just for QXO but also the shareholders.
Certainly age is a risk but watch recent interviews of Brad and you see he is incredibly energetic. I don't foresee any risk in the next few years but obviously a lot could change over 10.
Regarding the valuation the current business isn't a focus at all. They will be making aquistions with their large cash pile. That is what will matter.
On that cash you are paying roughly 1x book which I don't think is unreasonable for such a great operator.
Cash always trades at book. The issue is that it is non productive at the moment. It needs to be put to work. Until then, my cash is better invested elsewhere. Acquisitions take time before being accretive. This is something to watch - invest once the money is put to work.
Put it this way, I would rather pay 2x book for something earning 20% return on equity, than pay 1x book for zero return on equity. In other words, this will be a better investment at some point in the future, even if it means paying a higher price. Let someone else bear the pain in the short-term for little or no return.
Just my opinion. I accept that yours may be different. That's what makes a market.
QXO is a case where you can get behind an incredible operator. I wouldn't consider it a turnaround since they have yet to actually make an acquisition. My whole thesis is just betting that Brad Jacobs will do the same thing he has done at past companies.
My favourite saying is that "Investing is a game of skill, Speculating is a game of chance".
Your use of the word "betting" suggests to me that you are doing the latter. It isn't investing because there is no way to model QXO at the moment, so you can't assess risk adjusted returns, durability of earnings, growth rates, return on capital or anything else that an intelligent investor would need.
There is nothing wrong with speculating. Most people in the market do it - Just don't confuse it with investing. You call yourself the "Busy Investor", maybe it should be the "Busy Speculator".
Just introducing constructive challenge to inform your decision making. Food for thought.
Kyler. This case ($QXO) seems more like a turnaround case as $CPS, $IHS, or we may say its a Venture capital case? Thanks
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Sorry I must have not hit send on my reply! QXO is really a pure play backing great management. They have yet to make an acquisition but this will just be riding the coat tail of Brad Jacobs. I feel really good about that considering his past incredible successes.
Thanks!
So more an acquisitions play if you boil it down.
Last November, QXO (QXO) made an offer to acquire Beacon Roofing Supply (BECN).
QXO’s CEO, Brad Jacobs, had approached Beacon’s leadership 15 times throughout the year, but each attempt was either ignored or rejected. It wasn’t until mid-January that the proposal became public.
In response to these rejections, Jacobs took his $11 billion takeover bid directly to shareholders, offering to purchase shares at a premium—approximately $124 per share.
This hostile tender offer triggered an immediate countermeasure from Beacon’s management: a swift implementation of a poison pill.
How this unfolds remains uncertain. However, if QXO is determined to acquire Beacon, the poison pill could significantly increase the final price they must pay.
For those unfamiliar with a poison pill, it’s a defensive strategy that allows existing shareholders to buy additional shares at a discount if a hostile bidder surpasses a certain ownership threshold. This tactic dilutes all shareholders, including the hostile bidder, forcing them to acquire even more shares at a higher cost. As a result, QXO could end up paying well beyond its initial offer.
Certainly not an ideal situation. It all comes down to if you think Brad Jacobs will do what is best for QXO shareholders and not over pay.
His track record tells me over and over he won't overpay. However I think this is a uniquely messy situation. We will see how it plays out.
I never understood hostile takeovers. If you buy a company, you need the existing management to be onside. You want them to stay on to help with the transition. Ideally there will be an earn-out to keep them motivated.
Now consider the hostility that exists with a hostile takeover. Making that a success is infinitely more difficult.
Why would anyone pursue that kind of M&A?
I never understood it.
M&A is difficult enough at the best of times. Many fail to deliver the intended benefits, and that's even when everyone is pulling in the same direction.
How can it succeed when everyone is pulling in different directions?
If I was Jacobs I would walk away.
Just took a quick read on this one. Looks like an interesting one to follow. I see that BECN rejected the offer by QXO last week. Brad Jacobs has done some good work over the years. I will have to perhaps take a dive into their SEC filings.
Thanks for sharing the write-up.
No problem!
What do you think about the first acquisition?
I don't think it has actually gone through yet but it looks like a great target. They are a quality company with high operating leverage which should be the dream scenario for Brad Jacobs.
They will likely have to issue shares for it to go through which isn't ideal but in the end Jacobs has a history of success and I don't expect anything different. I will definitely follow closely if it goes through!
Yes. Let’s see how it goes. Its quite a big first acquisition.
I thought he would go smaller
I agree, I thought they would go smaller as well.
Is there a risk of high dilution for acquisitions or is he going to buy with debt and freecashflow in the future?
Great question here. There is the potential they issue more stock and dilute shareholders. However with Brad Jacobs history he has a track record of creating value for shareholders. Meaning if he issues shares, for every $1 he gets he creates more than $1 of value.
For QXO though I don't expect them to issues shares anytime soon. Brad is a fantastic operator and would likely only do so when he knows it makes sense not just for QXO but also the shareholders.
Brad Jacobs is approaching his 70th birthday - your analysis looks ten years forward, by which time he will be 80.
Despite his past successes, which were largely achieved when he was in his 40s, how much of a risk do you see his age?
What happens if his health deteriorates in the near term?
What kind of succession planning does he have in place?
I am a huge fan of Brad Jacobs - but he is mortal like the rest of us.
Forget the Market Cap of over $5bn, an EV of $1bn on $50m of revenue looks rich.
It looks like much of the medium-term success, if it arrives, is already in the price.
Irrational exuberance?
Certainly age is a risk but watch recent interviews of Brad and you see he is incredibly energetic. I don't foresee any risk in the next few years but obviously a lot could change over 10.
Regarding the valuation the current business isn't a focus at all. They will be making aquistions with their large cash pile. That is what will matter.
On that cash you are paying roughly 1x book which I don't think is unreasonable for such a great operator.
Cash always trades at book. The issue is that it is non productive at the moment. It needs to be put to work. Until then, my cash is better invested elsewhere. Acquisitions take time before being accretive. This is something to watch - invest once the money is put to work.
Put it this way, I would rather pay 2x book for something earning 20% return on equity, than pay 1x book for zero return on equity. In other words, this will be a better investment at some point in the future, even if it means paying a higher price. Let someone else bear the pain in the short-term for little or no return.
Just my opinion. I accept that yours may be different. That's what makes a market.
QXO is a case where you can get behind an incredible operator. I wouldn't consider it a turnaround since they have yet to actually make an acquisition. My whole thesis is just betting that Brad Jacobs will do the same thing he has done at past companies.
My favourite saying is that "Investing is a game of skill, Speculating is a game of chance".
Your use of the word "betting" suggests to me that you are doing the latter. It isn't investing because there is no way to model QXO at the moment, so you can't assess risk adjusted returns, durability of earnings, growth rates, return on capital or anything else that an intelligent investor would need.
There is nothing wrong with speculating. Most people in the market do it - Just don't confuse it with investing. You call yourself the "Busy Investor", maybe it should be the "Busy Speculator".
Just introducing constructive challenge to inform your decision making. Food for thought.