Brad Jacobs on His Big Bet on Building Insulation

SPEAKER_2 (0:02)

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Tracy Alloway (0:18)

Hello, and welcome to another episode of the Odd Lots Podcast. I'm Tracy Alloway.

Joe Weisenthal (0:22)

And I'm Joe Weisenthal.

Tracy Alloway (0:23)

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.

Joe Weisenthal (0:31)

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.

Tracy Alloway (0:55)

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.

Joe Weisenthal (1:20)

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.

Tracy Alloway (1:42)

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.

Joe Weisenthal (1:57)

That's right. It's a deal talk. Let's do it.

Tracy Alloway (2:00)

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.

Brad Jacobs (2:37)

Oh, my pleasure. Great to be here.

Tracy Alloway (2:39)

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.

Brad Jacobs (2:57)

Yeah, a merger. I'll go with merger. Merger's fine. We're putting together two great companies and forming an even greater one.

Joe Weisenthal (3:04)

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.

Brad Jacobs (3:34)

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.

Tracy Alloway (3:44)

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.

Brad Jacobs (4:02)

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.