TRG | The Bottom Line – 12/15

Bradley Jacobs, who has proven out an acquisitive and organic growth strategy in multiple large fragmented industries with ~500 acquisitions over his career, announced earlier this week his intention to enter the building products distribution under a company called “QXO.” The attributes that Jacobs looks for when entering industries include: Large and fragmented, with inherent growth, even if cyclicality is present. Jacobs often drives greater use of technology at all segments of operations to drive greater efficiencies and margins. The industries he has been involved in include waste management, equipment rental (United Rentals – URI), freight and logistics. In this particular venture, Jacobs is casting a wide vision by geography, end-market, and product set. Jacobs stated in the press release, “We expect to achieve a run-rate of at least $1B by the end of year one, at least $5B within three years, and tens of billions of dollars over the next decade. QXO’s scale should elevate the customer experience, increase sales force effectiveness and enable margin expansion.” The release highlights a number of attributes of this fragmented industry: ~7,000 distributors in North America, ~13,000 in Europe, $800B in combined annual revenue in these two geographies, with a CAGR of 7% over the last 5 years and secular drivers to support growth in res, non-res, and infrastructure markets. One other notable attribute is the inefficiency of, or lack of, technology use in the industry, which QXO hopes to push further into usage by all stakeholders – QXO itself, suppliers, contractors, and end-use customers/owners of the buildings. The construction industry, as has been noted for many years, has lagged in the adoption of technology vs. other industries. In our opinion, we expect QXO to successfully scale and become quite large. This should have the secondary effect of helping advance the entire distribution industry and any subsegments the company touches. Most importantly, we believe a handful of branch-network based companies TRG covers (distribution, equipment rental and leasing) ALREADY exhibit the traits that Jacobs hopes to achieve with QXO and have meaningful growth opportunities. Those TRG-covered companies include: ALTG, BECN, BLDR, FERG, GMS, HEES, HNI, HRI, URI, WSC.

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TRG | The Bottom Line – 12/29

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TRG | The Bottom Line – 12/8