transcript

Speaker 1:
[00:02] Bloomberg Audio Studios, podcasts, radio, news.

Speaker 2:
[00:18] Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Speaker 3:
[00:22] And I'm Joe Weisenthal.

Speaker 2:
[00:23] Joe, we like talking about the old economy on this podcast, right? I don't even think, when people use that term, old economy, I think it's kind of unfair.

Speaker 3:
[00:31] I, it's funny, I was literally about to respond and say that maybe like this whole old economy, new economy distinction, it's a little unfair. The old economy is still here, it's not generative AI, but it's arguably, maybe it's even more important. The things that we call the old economy, you couldn't have the new economy without cooling and heating.

Speaker 2:
[00:55] This is exactly what I was going to say, because like the old economy and the actual business of making things and moving things, heating and cooling, is very much enmeshed with the new economy, which is all about generative AI, and in order to have generative AI, you need data centers, right? And if there's one thing we know about data centers, it's that they consume vast amounts of both building material and electricity.

Speaker 3:
[01:20] And yeah, heating and cooling. So yes, you're absolutely right. We will no longer use the slur, old economy. We will find some other word. But yes, we like talking about industries in which physical things get built and then sold at a higher price from which they were built from and how these things actually work.

Speaker 2:
[01:42] Yes, indeed. So we are gonna be talking about that today. We also like occasionally talking about deals. And it's not every day that we get to talk about a deal that has literally just been announced and is, I think, one of the biggest deals that we've actually seen recently.

Speaker 3:
[01:57] That's right. It's a deal talk. Let's do it.

Speaker 2:
[02:00] Okay. So we do in fact have the perfect guest. We're going to be speaking with Brad Jacobs. He's been on the show before. And he is, of course, the CEO and founder of QXO, which has just announced a huge deal to buy a company called TopBuild in the insulation space. They're paying 17 billion. And at the end of this acquisition, they expect to be the second largest publicly traded building products distributor in North America. So truly a melding of mergers and again, the old slash new economy. Brad, welcome back to Odd Lots. Thanks so much for coming on.

Speaker 4:
[02:37] Oh, my pleasure. Great to be here.

Speaker 2:
[02:39] Congrats on the deal. The first question I have to ask is, is it even accurate to call this an acquisition right now? Because if you're paying 17 billion for TopBuild, looking at QXO's market cap, you guys are at like 17 billion as well. This looks like a merger. This is so big, this basically looks like a merger.

Speaker 4:
[02:57] Yeah, a merger. I'll go with merger. Merger's fine. We're putting together two great companies and forming an even greater one.

Speaker 3:
[03:04] You know what's funny? I hadn't heard of TopBuild up until this morning, or sorry, yesterday when the news came out that you're going to buy it. You know what I was thinking about? America's incredible. This company stocked now with the premium that's baked in today, trading at 484. This was a $43 stock as recently as 2018. America is incredible. These companies that fly under most people's radars can just do. You don't have to be in the invidias of the world to make a lot of money.

Speaker 4:
[03:34] Well, I agree with that. You have to have a service or a product that there's demand for, and you've got to give a great customer experience. If you have those two things, you'll make a lot of money.

Speaker 2:
[03:44] All right, so walk us through the rationale for doing this, because again, a huge deal, and it seems to have caught a few people off guard. They were expecting you to maybe buy some smaller companies, keep the roll-up strategy going, but again, this one is very large. Oh, yeah.

Speaker 4:
[04:02] So the acquisition of Beacon, following the acquisition of Kodiak, which is followed now by the acquisition of TopBuild, takes us from 11 months ago, where we had no building products revenue, let alone EBITDA, to the second largest publicly traded building products distributor in North America, with more than $18 billion in combined company revenue and more than $2 billion of combined adjusted EBITDA. It's a big deal. It's a big deal in the industry. It's a big deal in the market as a whole. It's very creative to our earnings, meaningfully creative to our earnings. And when you look at the multiples, that's reasonable multiples. We're paying 14.9 times 2025 EBITDA pre-synergies and about 11.8 times EBITDA post-synergies. And there's tons of synergies we can get. We're targeting $300 million or so of synergies over the next five years.

Speaker 3:
[05:01] Just to zoom out for a little bit, regular listeners of course know who Brad is. We've had him on the show several times, but just in case you don't, he is a serial entrepreneur. If there's ever a company and their ticker has XO in the handle, it almost certainly was founded by Brad.

Speaker 4:
[05:19] One exception.

Speaker 3:
[05:20] Which one?

Speaker 4:
[05:21] ExxonMobil.

Speaker 3:
[05:24] You didn't find that one? You didn't find ExxonMobil?

Speaker 4:
[05:26] I wish I had.

Speaker 3:
[05:27] One that got away.

Speaker 4:
[05:28] No, it got away from me.

Speaker 3:
[05:29] But it's always these, again, I hate words like real economy and old economy, but we could see physical economy. And it's warehouses and trucking and freight brokerage and construction equipment, rental and garbage stuff, like anything real and physical. That's what Brad's into. He's funded numerous companies. He also wrote a book, came out in 2024, How to Make a Few Billion Dollars. And the reason I still have this job today is because I haven't gotten around to reading the book yet. Had I gotten around to reading the book yet, I'd probably be a billionaire by now and I would be doing something different. But I'll get around to doing that eventually. One thing that's interesting, though, to me, just learning about TopBuild today, in addition to seeing their stock, they had also been a serial acquirer. And in fact, it said, like in one of their recent presentations, this has been one of their main strategies. So why don't you talk about, like, who is this company, TopBuild? What do they do? Tell us a little bit about the history and the footprint of this company that you're buying.

Speaker 4:
[06:26] TopBuild is the largest installer and distributor of insulation. And as you were just saying, everybody needs insulation. Every house needs insulation in the walls. Every office building needs insulation everywhere. It's a needed product and it's not going anywhere. It's not going to be disrupted by AI or LLMs. It's just not going to go away. So when we complete the merger, we'll be number one in insulation, we'll be the second biggest in roofing, we'll be number one in waterproofing, and we'll hold number one or number two positions in certain geographies within lumber and building materials. So we'll have a huge addressable market, several hundred billion dollars.

Speaker 2:
[07:11] So I take the point that everyone needs insulation. This is definitely true, but we alluded to this in the intro, data centers in particular need insulation. How much of this deal is the expectation that you're going to be getting a lot of business from the data center build out as well?

Speaker 4:
[07:28] Oh, we will get a lot of business from data centers, but not just on the insulation. Data centers need roofs too. Data centers need waterproofing, very much so. Data centers often need lumber related products. So data centers are big consumers of building products. Now, TopBuild itself has single digit percentage exposure to data centers, but it's very fast growing.

Speaker 3:
[07:52] Wait, sorry, say that, how much exposure?

Speaker 4:
[07:54] Single digit percentage of the revenue.

Speaker 3:
[07:56] Got it, got it.

Speaker 4:
[07:57] But in terms of growth, it's growing very, very fast.

Speaker 3:
[07:59] Okay, so when we think about the insulation market in general, how much is it residential? How much is it commercial? And is there a lot of overlap, or do companies tend to specialize in one or the other?

Speaker 4:
[08:12] It's fairly evenly split. They have a little more residential than commercial, but they have both.

Speaker 3:
[08:17] Okay.

Speaker 4:
[08:17] They have both. And we have that as well, by the way, in the two companies we bought before this, Beacon and Kodiak, we have residential customers, we have commercial customers, we have industrial customers, we have municipal customers. Everybody needs building products. If there's a building, it's made of building products.

Speaker 3:
[08:34] And just to be clear on the nature of the business, they do installation, like within the installation supply chain, where do they sit exactly? Is it, do they manufacture it, or is it just distribution and installation? Like what do they do?

Speaker 4:
[08:48] They don't manufacture. They buy it, and then they either resell it at a higher price to a contractor, or they actually install it. They sell it and install it, and to various customers.

Speaker 2:
[09:01] Okay, well, now I have a dumb question, but is there a quality differential when it comes to insulation? Like, is there a particular type of insulation that a data center would need versus your run-of-the-mill house?

Speaker 4:
[09:14] There's not too many different types of insulation, but there are different types, and the big manufacturers are ones like Owens Corning or John Mansville, or Knauf is another big one. So, you know, big companies and very high-quality stuff. So insulation has been around for a long time, but technology makes it better and better every decade.

Speaker 3:
[09:34] Where is it made, insulation?

Speaker 4:
[09:36] It's mostly made in the United States.

Speaker 3:
[09:37] Is it? Yeah. This seems to be, I was surprised. I remember the last time we talked to you about, like, roofing, and you mentioned how much shingle is still made in the US. Talk to us about, like, why is that? Why is this a particular type of good that is still largely, what are the economics of it such that it still makes sense to manufacture it in the United States?

Speaker 4:
[09:56] It's more about regulations. So the types of building products, the regulations, the codes are different country to country. So insulation in Europe is not quite the same as insulation here. Roofing products in Europe, not quite the same as it is over here. So waterproofing, same thing. So slightly different regs, and that makes it better to manufacture closer to where it's being used.

Speaker 2:
[10:21] So how did TopBuild actually get on your radar? Did you initially approach them? Did they approach you?

Speaker 4:
[10:27] Oh, we approached them. Absolutely, we approached them first, yeah.

Speaker 2:
[10:31] Okay. So now I'm very curious, because I know you have a lot of experience in M&A, and a lot of people would describe your business as basically a roll-up for building materials, but I also know from reading your book, and by the way, Joe, I'm not yet a billionaire, but I did read the book, you have a very specialized process when you target a company to acquire them, including having a former CIA intelligence officer, one of the guys who I think worked with lie detector.

Speaker 4:
[11:03] He was on your podcast.

Speaker 3:
[11:04] Yeah.

Speaker 2:
[11:05] Yes, yes. So did he interview all the CEOs? They all went through background checks and that sort of thing?

Speaker 4:
[11:12] So we do background checks, but we spent two days in our lawyer's offices here in New York, and about 15 members of the senior management team of TopBuild came up, including the CEO and CFO. And yeah, we interviewed each one for like an hour and a half and got to know him, and it checked out. Everything they said was true.

Speaker 3:
[11:30] I love that. Interview two guys for an hour and a half, and say, here's $17 billion. Sounds good. Now, I'm sure it's a little more complicated than that. What else goes in in the due diligence process? Do you go around and talk to customers?

Speaker 4:
[11:42] Oh yeah.

Speaker 3:
[11:42] So talk to us about that.

Speaker 4:
[11:43] Well, we have a lot of the same customers. We have a lot of the same vendors. Big, big overlap. So TopBuild is a very well-known company. It's the number one company in its field, so it's pretty easy to check them out. So we knew what we were getting before we did those interviews over two days, but still, you want to talk to the people. You want to find out where are the skeletons, and what are the risks, and what are the good things, and where's the opportunities, and where's the upside, and what are some things you can bring to the table, particularly in terms of technology that could turbocharge the growth of the company. So those in-person meetings are very important. It's not the only part of due diligence. Do a lot of stuff online, you do a lot of stuff with third-party channel checks, but those in-person meetings with the management team are absolutely crucial. I would never buy a company, any company, without doing management interviews. That's the most important part of due diligence.

Speaker 2:
[12:33] It's funny, I was hanging out with some people over the weekend, and I was hearing about some deals that they were doing in the AI space, including a pretty large deal that apparently they completed in an afternoon. You can imagine what the due diligence process is on a deal that's completed in a single afternoon.

Speaker 4:
[12:52] I don't know how to do that yet. That's over my capabilities, but it doesn't take a long time. It was surgical and not overly intrusive in the due diligence, but afternoon is a little tight.

Speaker 2:
[13:19] So what made you comfortable with the premium? Because again, 23% on the existing share price of TopBuild, that's a pretty nice amount of money.

Speaker 4:
[13:30] Yeah, it's a fair price. It's not a terribly high price, it's not a terribly low price. When you're looking at multiples of EBITDA, it's 14.9 times 2025 EBITDA pre-synergies, and about 11.8 times EBITDA post-synergies, the expected synergies. So it's reasonably priced. It's a lower multiple than we trade at, which is very important, because that's where you get the accretion, the accretion to earnings per share. This is gonna be a massively accretive transaction for us.

Speaker 3:
[14:00] Talk to us about setting aside this acquisition, which we'll come back to. How does business feel over the last year? Just general economic conditions in the building materials distribution world. What's been the last year like?

Speaker 4:
[14:16] Super soft. Super, super soft. Now, super soft because demand in general in building and construction is soft. We're not immune to that. But we've mostly been in roofing up until recently.

Speaker 3:
[14:28] Yeah, right.

Speaker 4:
[14:29] Now, roofing is a special animal because it's extremely affected by weather, meaning bad weather. You want to have... Bad weather is good weather for roofing, so you want to have sleet and a lot of hailstorms and hurricanes and tornadoes. And I got to tell you, there's a lot of cognitive dissonance about that because all my life, I've watched television, you see a hurricane like normal people, unless you're a sociopath, you feel bad. You feel, oh wow, it's too bad that these people get in there.

Speaker 3:
[14:58] Wait, have you become a sociopath?

Speaker 4:
[14:59] No, no, no, no. Definitely not becoming a sociopath.

Speaker 1:
[15:02] No hell?

Speaker 3:
[15:03] When's it going to hell?

Speaker 4:
[15:04] No, but my point is this. If a normal person watches television and sees people's houses getting, roofs being blown off, usually you feel bad about that. You feel compassionate, you feel, wow, it's too bad for them. So there's a dissonance here because that's really good for the roofing business. One half of your brain is still a human and had compassion and feeling bad for this, and the other side, you're, yeah, great, I got a storm, got a hail storm, isn't that fantastic? These people's roofs are all going to go flying off, we're going to get more business. So the good or bad news, depending on your perspective, is in 2025, there really weren't any big storms. There weren't any named storms, big hurricanes, tornadoes. So that was bad. And compounding on that, in the first quarter here, you had the bad kind of bad weather, which is snow and other bad weather that just slowed everything down, just stopped business, but didn't create any demand from roofs.

Speaker 3:
[15:57] Roof damage.

Speaker 4:
[15:58] Exactly. So the external conditions haven't been great. Now that said, I don't care, because I'm not building a business for one year or two years or three years, like I did in my previous companies. I'm building a strong, durable, iconic company that's going to be around for decades. And that's what I think. We're always thinking about long term. We're thinking five, ten years. We're not thinking about a quarter or the year. If we have a choice on a decision for capital allocation or M&A or investments, we barely think about how is it going to affect this quarter, this year. It's really how is it going to affect the long term.

Speaker 2:
[16:35] Were you impacted by the tariffs at all? Did that complicate the existing business?

Speaker 4:
[16:39] Not too much because in roofing, which is what we've been up until Kodiak and our TopBuild, almost all of it is manufactured in the United States, sold in the United States or manufactured in Canada or sold in Canada. And we really don't have business overseas. So the tariffs didn't really affect us. Now, it might have affected demand destruction overall. It might have affected how much construction was happening, but directly we were not clobbered by the tariffs. The weather clobbered us a lot more than the tariffs.

Speaker 3:
[17:11] What is the main commodity input for an installation?

Speaker 4:
[17:15] Oh, it's chemical. It's chemically created and it's refined in a manufacturer with a lot of people looking like chemists.

Speaker 3:
[17:25] So like, is it petrochemical? Like if like oil prices were to surge, would that be a sort of like margin crimping factor for installation prices?

Speaker 4:
[17:34] Well, I think we're better off with oil prices lower for demand, not so much for the cost of the goods, but lower oil prices, there's more confidence and more demand. But the real factor for building products is mortgage rates. So mortgage rates when they were seven and a half percent was really bad.

Speaker 3:
[17:52] Yeah.

Speaker 4:
[17:53] Because people had three percent mortgage or three and a quarter percent mortgages and people just have a problem paying off a three percent mortgage and taking out a seven percent mortgage. They're now down a bit, six and a half percent. But they got to come down more. So when the Iran war finally ends and it'll end someday, and interest rates come down, which they will under this administration, it's pretty good odds that mortgage rates will come down and business will start booming.

Speaker 2:
[18:19] Yeah. This is what I wanted to ask, which is, I guess, financing availability at the moment. Because clearly we are in the midst of this Iran situation and we have seen some very volatile markets out there. We've seen traders start to ratchet down, I guess, their expectations for a rate cut later this year. What's financing been like for you at QXO?

Speaker 4:
[18:41] We have no problem getting access to capital. That's not been an issue for us. We've raised, since I started the company almost a couple of years ago, we've raised something like $15 billion and fairly easily. On this transaction here, in addition to that, we've got $17 billion. Now, part of that, roughly about 55% of it is going to be in the form of stock, but the other is cash. We got debt commitments from Morgan Stanley and from Wells Fargo and from Barclays and pulled that all together in about a week.

Speaker 3:
[19:15] Is synergies, when you talk about the future cost savings, is that a euphemism for layoffs?

Speaker 4:
[19:20] No, just the opposite.

Speaker 3:
[19:22] Okay.

Speaker 4:
[19:22] It's to grow the business. It's to figure out ways that you can cross-sell customers. A contractor who is buying roofing and putting that into their construction, pretty good chance they're going to want insulation in what they're building too. We also sell windows and doors, for example, and all of our customers have some exposure to windows and doors. We'll be number one in insulation, number two in roofing, number one in waterproofing, and number one or number two in the key geographies served within lumber building materials. There's a lot of cross-selling between insulation, roofing, waterproofing and lumber.

Speaker 2:
[20:03] Wait, say more about that because we hear from executives all the time when they talk about synergies in general terms, but what exactly is the low-hanging fruit in this particular deal? What is it that you're able to do from day one versus what you're able to do in a year or two?

Speaker 4:
[20:23] Well, the first thing that we do when we go in to buy a company, whether it's TopBuild or anybody else, is we meet with as many people as we can, and we ask them to just step back, get out of their normal comfort zone, and think about what would be the perfect circumstances and tools and techniques and repositioning of the company to grow even faster. Where are their pain points? Where are things that are holding them back? We collaboratively put together a business plan. Now, I already know, like with every other acquisition we've done ever, technology is going to be the first thing. Technology today slows people down in the market. They've got to get the latest technology, the greatest warehouse management systems, which we'll bring to the table, the greatest TMS, transportation management systems, the greatest ERP, which is also using a CRM that's AI generated to empower the sales force, get productivity up. Technology is the number one enabler of synergies, but there's going to be so many synergies here. The cross-selling is a big one. There are some cost savings. When you're a bigger player, we're going to be the second biggest publicly traded building products distributor. We will get, because we deserve, a better price from the manufacturers. I mean, bigger customers get bigger discounts, bigger rebates than the smaller customers. So a building products distributor, like any distributor, makes money by buying products as cheap as possible and then selling them at a reasonable price. That's a markup from what you're buying. These are the two main things. You're buying and you're selling. Now, in the meanwhile, under that, you have to manage your costs. Make sure your costs are efficient and lean and not wasteful and not inefficient. We can do that too. But that's not really where you make the money. You don't make the money on slashing costs. That's what private equity guys do. That's not what I do. What I do is I invest in the business, I invest in the people, I invest in their learning and development, I invest in their training, I invest in their careers. We tie the compensation to results. We figure out what are the right KPIs, the key performance indicators. What are the right metrics that mark success in this business? Then we tie the compensation to that and let people out of self-interest do great for the company and create organic revenue growth on the top side and then margin expansion on the bottom side.

Speaker 3:
[22:41] I love a business that is just buying something and finding an opportunity, buying something, assembling it, making it nice and then selling it for more. It's old fashioned. It's honest. I respect it a lot. I'm glad that you mentioned the alphabet soup of different types of enterprise software that a business has. One of the biggest themes, as you know, in the market this year, really maybe in the last six months, but definitely in the last year is this idea that the relationship between businesses and their software vendors is going to change. And the reason for this is AI. And maybe some businesses that didn't have that expertise in the house are like, maybe we'll build this solution on our own rather than hire, etc. Setting aside this deal right now, has your in the last year, has your relationship with software vendors, does it feel like the leverage is changing thanks to AI, whereas maybe at the negotiating table, when you're re-upping negotiation for seats, etc., where you have a little bit more, you can cancel deals or get better pricing. Talk to us about what's going on.

Speaker 4:
[23:43] Not really, a lot of our technology is homegrown. We have a lot of people we've hired from Microsoft and from other big-

Speaker 3:
[23:51] Sure, but you're not building your own payroll software, right?

Speaker 4:
[23:56] Well, we still outsource-

Speaker 3:
[23:58] That's what I'm saying.

Speaker 4:
[23:59] That hasn't changed much.

Speaker 3:
[24:00] There's a lot of anxiety in the market that all these legacy companies that do something simple, like payroll, you've seen their share prices, I don't need to show them to you.

Speaker 4:
[24:08] Long term, Joe, that's true. Long term, that's true. But long term, that's true for pretty much every job. Every industry and every company is AI and robotics and automation is going to disrupt quite a number of jobs. But having said that, the productivity of the economy is going to be so much greater that we can afford to have more free time and still enjoy a nice lifestyle. So I'm not worried about that.

Speaker 3:
[24:33] No, not worried, but what I'm saying is like, are you exploiting, do you have any opportunities to like, are you a beneficiary of these tools?

Speaker 4:
[24:43] Yeah, absolutely. So I've been a CEO since 1979. It's the only job I've ever had. I've never been more productive by a long shot than I am right now. Reason being, we have AI taking notes of all the important meetings around the company. So at the end of the day, I can get a dozen readouts of AI generated summaries of everything that's going on in the company, stuff that in the old days, before you had the AI note taking, either it wouldn't reach to me or it wouldn't reach me, or it would take two or three months before it got to me. So as a CEO now, you know what's going on in the company, all over the company right away in real time. When you have longer meetings, the AI will do sentiment analysis, the AI will look at trends. We can do customer surveys, employee surveys using AI that so powerful now. I mean, you can get real good analysis from it. It's hugely powerful. You can see where this is going. AI is going to make corporate America far more efficient than it is right now. Everything that's measurable will be measured, analyzed, and then suggesting how to improve it in real time. It's a very exciting time to be alive and be in the corporate world.

Speaker 2:
[26:10] Just going back to the QXO business, so I know I keep saying this is a very big deal, and it is, and it immediately vaunts you to, as we said, the second largest publicly traded building products distributor in North America. As you get bigger and as you make more of these acquisitions, you know, fairly quickly, you've done like three or four now in a little over a year, I think, or maybe a little less than a year. Do you worry about antitrust at all?

Speaker 4:
[26:39] Well, we're not at a point where our market share is so huge that it would have any effect on raising prices to the customer. So no, I don't worry about that right now.

Speaker 2:
[26:48] All right. So on that note, what is the universe of potential targets look like to you right now? And should we expect that your next deal is going to be quite as large?

Speaker 4:
[26:59] Well, we have a big pipeline and we're always talking to many, many acquisitions at the same time. A big mistake a lot of roll ups do or even corporate acquirers is they kind of dabble in M&A. They don't have like a scientific organized process. So they work on one deal, they fall in love with the deal, and they overpay. It's like the biggest crime, the biggest mistake you can make as an acquirer is to overpay. People say, oh, wow, don't worry about it. You'll forget about the purchase price the next day. Well, your balance sheet never ever forgets the purchase price. That's money that you've wired out of your account into someone else's account. Not coming back. So you got to watch the purchase price quite closely.

Speaker 3:
[27:38] What's your advice? You know, like one of the things that I'm aware of over the last 10, 15 years is the rise of like, I think they're called like search funds or something. You get like some guys like an MBA, maybe a Wharton. They don't know what they want to do. They raise some money for their friends and they're like, oh, we're going to like go buy this local like pool supply company or whatever HVAC company. We're going to like Six Sigma it up, and then we're going to make some money, et cetera. I think you're probably a god to these people because you have the art of buying companies down as practice. Where do you see them go wrong? Typically, what would be your advice to these types who think, you know what, I'm going to buy an old fashioned business and make it run great. What do you where do you see people go wrong in this?

Speaker 4:
[28:21] Most of them go wrong. Most of them go wrong because they're really not operators. They're really just promoters, financial guys. That's fine, but they don't integrate and optimize the businesses. Now, they can still make money on the spread. In other words, you see some of these smaller roll ups, they buy a bunch of companies, that whether veterinarians or car washes or whatever, and they buy them at single digit multiples. And then suddenly they're the hundred or $200 million of EBITDA. And they say, wow, I'm a big company. I should get a double digit multiple. And oftentimes that works. That's not how we make money. We make money on, yes, buying companies at a lower multiple than we raise capital at, but then integrating them, optimizing them, improving them, making yourself more valuable to the customer, making yourself a real exciting place to work for the employees, making a real good long-term business plan that creates value for everyone in the ecosystem. That's not what these smaller roll-ups do. These smaller roll-ups are really simply playing the arbitrage between what they buy on small companies and then aggregating them to get a higher multiple.

Speaker 3:
[29:25] I asked you if the synergies were euphemism for layoffs and you quickly shot that down. One of the things that Warren Buffett said from time to time is like, people who like family owned businesses, some of these smaller businesses, they like selling to Warren Buffett. They felt like, okay, this company that I've worked with and built for a long time, it's going to be in good hands. Maybe it will give Warren Buffett a slightly better price than the other guy who came knocking. Do you feel like from your perspective, it's important that the would be seller, they like you, that they feel that this thing that they work to build is going to be in good hands? And is that part of your long term strategy?

Speaker 4:
[30:01] Yeah, I do.

Speaker 3:
[30:01] Does that give you edge?

Speaker 4:
[30:02] I do. When you're selling a company, it's kind of an emotional thing. I mean, you're not going to sell a company for like 20% less just because you like the guy, but you don't necessarily go with the highest bidder every time. Now it depends who you are. If you're a private equity owned, yeah, you probably will go with the highest bidder because you're going away and you really don't care. If you're a privately owned company by a family, you care very much about who you sell the company to because it's your legacy, then maybe there's relatives, there's local communities. It's a big deal. They want to make sure that you're going to be good steward for something they've built up over 10, 20, sometimes 30 years. So yeah, it does make a big difference.

Speaker 2:
[30:39] I'm going to put you on the spot now, but when you were negotiating on the TopBuild deal, what was like the biggest sticking point that you had to haggle out? What was the biggest point of contention?

Speaker 4:
[30:50] Well, it's always price because the buyer wants the lowest possible price and the seller wants the highest possible price, but we found a compromise. We found something in the middle that was fair, both for them and for us. That was really the main sticking point. The other stuff we saw eye to eye, the very similar cultures are a lot of different ways. They're good operators, we're good operators. They've done a lot of M&A, they've done a few dozen deals that built up the company. We're big in M&A. As you know, I've done, my teams and I have done over 500 acquisitions. There's a lot of stuff in common that we had a lot of mutual affinity and respect over.

Speaker 3:
[31:23] By the way, I know this is no longer thing anymore, but I'm just looking at some of the other companies in the XO family. XPO, that stock is on an absolute tear. And I've been seeing trucking is like kind of back, like trucking is hot these days. Can you talk a little bit about what's going on in freight? And obviously, even though it's like your main focus these days, I'm sure your business touches freight every single day. Why is freight so hot again?

Speaker 4:
[31:50] Well, freight isn't so hot across the board. Some companies are still not doing so well in that. Now, XPO under Mario, under Mario Horek's leadership, is doing fantastic. I attribute that mainly to Mario and the team. The execution of the business plan has been fantastic. Just laser-like surgical, getting the damages down, getting the on time up, improving the customer experience. It's just done an amazing job at it. It's just executed very, very, very well on that. And that's why the stock has performed so well. But it's management matters. In any company, in any industry, management matters a lot. You can have a strong management team who understands how you make money, has the nose for money, has the analytical capabilities of knowing what's important and what's not important, treats their employees right, treats their customers right, treats their vendors right, and they'll make a lot of money. And you'll have the same exact business across the street with not-so-sharp management. They don't treat their customers right, they don't treat their employees right, they don't treat their vendors right, and boom, the company doesn't do so well. So management matters. It matters a real lot.

Speaker 2:
[32:56] But again, I know you're not on a day-to-day basis with XPO now, but do you get the sense that the trucking cycle has turned?

Speaker 3:
[33:05] JB. Hunt is at an all-time high, too.

Speaker 2:
[33:07] Yeah, a meaningful uptick in freight.

Speaker 4:
[33:10] There are several important gurus, analysts and industry experts in trucking who have called a turn in the last couple months. We'll see, you know, a couple months doesn't make a trend yet, but at the time, it looks like it's inflected. It looks like there's more goods moving, there's more freight moving, industrial America is starting to get a little bit better, there's more pallets on the road. It looks like trucking has gotten better, but it's early days still.

Speaker 3:
[33:34] I just have one last question. I guess it's basically about the business environment. It's so obviously interest rates are going to be a huge factor out of your control though, et cetera. So what can you do about it? Whether out of your control, oil price is going to be a factor or energy prices going to be a factor in any sort of real goods space. Another thing that's out of your control, but like here's the weird thing. And I think a lot of people have like, this is the hard thing that a lot of people have a hard time reconciling, which is that like, the last couple of years, maybe the last several years, last couple of years, they felt pretty chaotic. There's a war going on right now. We had this huge trade shock last year, et cetera. Some of the tariffs got watered down a little bit, but it was still a high level of uncertainty. And you know, consumer sentiment's pretty negative, et cetera. And even business sentiment, when they read the regional surveys, not that great. And yet by and large, corporate America seems to be doing well and making a ton of money. And you wouldn't necessarily know, especially if you look at the stock market, that there is all this uncertainty going on. Do you feel a relationship between the chaos that you read about in the news and the choices that businesses make on a day to day to either invest or not?

Speaker 4:
[34:50] Of course. So all the things you mentioned, energy prices, interest rates, et cetera, that affects business. So in terms of capital allocation, that really matters. Now, you can always make money if you've got a smart management team. In every part of the cycle, the top, the bottom, the middle, there's always a play. There's always a way to make money. Now it's different in different parts of the cycle. When things are depressed, you can buy back your stock, you can do M&A, when multiples are really high, you can make a dividend and use stock for stock deals with companies. There's different plays at different parts of the cycle, but people who have the nose for money will be able to figure out how to make a buck in any part of the cycle.

Speaker 3:
[35:28] I've got to read your book.

Speaker 2:
[35:31] All right. Brad, we're going to leave it there, but thank you so much for coming back on Odd Lots to explain the latest deal. Really appreciate it. Oh, wait, I should ask before we let you go, any hints on the next target? You have roofing, you have waterproofing, you have insulation, what's next?

Speaker 4:
[35:46] Tracy, we don't look at just one thing at a time. That's our MO in terms of M&A is look at, cast a wide net, talk to lots of different acquisition candidates, at the same time, move them all forward ahead, like a funnel, and see who gets the finish line. That way you're relaxed about it. You don't have a gun to your head about a specific deal. So it's not like I'm being coy and not telling you the next deal. I don't know. We're looking at lots of different things. We'll see when and which company the stars line up for.

Speaker 2:
[36:18] All right, well, I can tell you in the Northeast, a lot of people are looking at wood burners at the moment because the cost of heating oil has gone up quite a bit. So maybe there's something there.

Speaker 4:
[36:26] There you go.

Speaker 2:
[36:27] I'm saying this out of my own self-interest. Okay, Brad Jacobs, thank you so much for coming back on Odd Lots.

Speaker 4:
[36:33] Pleasure, all mine.

Speaker 2:
[36:46] Joe, did I tell you last year a big XPO truck got stuck in our driveway?

Speaker 3:
[36:52] You should have asked Brad about that.

Speaker 2:
[36:54] Well, he's not at the company anymore.

Speaker 3:
[36:56] It's not his responsibility, too.

Speaker 2:
[36:58] I did think it was pretty funny. I resisted the urge to call him and send a photo of this giant truck stuck in the mud, but I felt bad for the driver.

Speaker 3:
[37:07] Does your place in Connecticut need insulation?

Speaker 2:
[37:10] Yes, it does, actually. So I'm a potential customer, and I'll be watching what happens with pricing after all these synergies very closely.

Speaker 3:
[37:18] Yes.

Speaker 2:
[37:18] But always interesting having Brad on, and I do think he seems to approach M&A a little bit differently to a lot of other people.

Speaker 3:
[37:27] Well, it's interesting to think about, one thing I really have come to appreciate talking with him is the degree to which, he mentioned he's done over 500 deals, so it's like, what are you really good at at your company? For him, the thing that he really is into is buying other companies, right? Like, you get the impression that there are companies where it's like, okay, the main thing that we do is we sell roofing materials, and from time to time, we might make an acquisition. But it's also pretty clear that from his perspective, the acquisition process is part of the core competency of any business that he actually runs, which I find to be pretty interesting.

Speaker 2:
[38:10] Yeah, absolutely. And the other thing that was interesting about that conversation is that AI builds out.

Speaker 3:
[38:15] Yeah, yeah.

Speaker 2:
[38:15] And the idea that, okay, at the moment, data centers might be, I think you said single percentage of TopBuild's business, but growing very quickly, and so you could see the potential there.

Speaker 3:
[38:28] And also the idea, we just talked about it a little bit, but I've never been a CEO of a really big company, but I've managed at times smaller teams within a company, and one of the trickiest things is having true visibility into the operation, et cetera. And so thinking about AIS, okay, the CEO can see everything, to some extent, summarized, structured in some way at a level that was pretty, that's different. It'd be interesting to talk more with someone, just about how being a CEO, having line of sight into your own business, is changing in the world of like AI note taking and stuff like that.

Speaker 2:
[39:11] Yeah, no, totally. I mean, it sounds like it's changing pretty fast for what Brad was saying. Okay, well, shall we leave it there?

Speaker 3:
[39:17] Let's leave it there.

Speaker 2:
[39:18] This has been another episode of the Odd Lots Podcast. I'm Tracy Alloway. You can follow me at Tracy Alloway.

Speaker 3:
[39:23] And I'm Joe Weisenthal. You can follow me at the stalwart. Follow our producers, Carmen Rodriguez at Carmen Armand, Dash O'Bannon at DashBot, Kale Brooks at Kale Brooks, and Kevin Lozano at Kevin Lloyd Lozano. And for more Odd Lots content, go to bloomberg.com/oddlots, where we have a daily newsletter and all of our episodes. And you can chat about all of these topics 24-7 in our Discord, discord.gg/oddlots.

Speaker 2:
[39:47] And if you enjoy Odd Lots, if you like it when we talk about the old slash new economy, then please leave us a positive review on your favorite podcast platform. And remember, if you are a Bloomberg subscriber, you can listen to all of our episodes absolutely ad free. All you need to do is find the Bloomberg channel on Apple Podcasts and follow the instructions there. Thanks for listening.