Brad Jacobs: Question Deeply, Act Quickly

SPEAKER_1 (0:00)

For Morgan Stanley, this is Hard Lessons, where iconic investors reveal the critical moments that have shaped who they are today. You'll hear about two out of consensus calls, one that was on the money, and one that wasn't.

Brad Jacobs (0:12)

We probably lost 500 million bucks, which is a lot of money, and you remember that forever.

SPEAKER_1 (0:17)

Today on the show, Brad Jacobs, chairman and CEO of QXO, and the founder of eight separate billion and even multibillion dollar companies. Those include United Rentals and XPO, the sixth and seventh best performing stocks in the Fortune 500 in the last decade.

Brad Jacobs (0:34)

I usually do one or two things for ten years, and then I reinvent myself and start all over again.

SPEAKER_1 (0:40)

Brad is the author of two best selling books, How to Make a Few Billion Dollars, and How to Make a Few More Billion Dollars.

Brad Jacobs (0:46)

I remember being interviewed by the Wall Street Journal. The stock had come down a lot.

I told the reporter, I think it's going to be the best deal of my career so far. It turned out I was right.

SPEAKER_1 (0:57)

He sat down with Eli Gross, Global Co-Head of Investment Banking at Morgan Stanley.

Eli Gross (1:02)

Brad, really great to be together.

Brad Jacobs (1:03)

My pleasure.

SPEAKER_1 (1:04)

They met at the Campbell inside Grand Central Terminal. Listen in to hear how speed, synergy, and small conversations have turbocharged Brad's success.

Eli Gross (1:16)

So Hard Lessons is about out of consensus calls in investing. Hard to think about anybody that's made more calls in investing than you.

500 M&A deals, you've raised over $50 billion of capital as you built up United Rentals, United Waste, as we made each other XPO and Transpone Logistics, and now QXO.

Brad Jacobs (1:37)

I've made a lot out of consensus calls.

Eli Gross (1:38)

A lot of out of, I've been around a few of those.

Brad Jacobs (1:39)

You've helped me out a couple of them.

Eli Gross (1:41)

So let's start with an out of consensus call that you made, and it actually worked out.

Brad Jacobs (1:46)

Well, first thing that pops right into my head is one that you advised me on when you were a transportation banker, Conway, of course. So that was, when was that? It was 2015, about 11 years ago.

And we were looking at Menlo. They had a subsidiary that did contract logistics. Great, great, great little subsidiary. And I wanted it. I wanted it real bad, because they had these really blue chip customers. And I wanted to cross-sell into those customers. So we were talking, trying to get a deal done, and we were going to do this reverse Morris Trust, and then the market cap went up, and it didn't work anymore. And the Conway folks said, why don't you look at buying the whole company? Wow, it's an interesting idea. I had never really thought about buying an LTL trucking company. We were a non-asset company at that. We were brokerage for the most part.

I said, I'll take a look at it, keep an open mind.

And we looked at it and studied it, and said, wow, there's a lot of cost we can take out of this because they had done three big acquisitions and never integrated them. So they had three HR departments, three IT departments, three sales organizations, three of everything. So we didn't need all three, we just needed one. And I saw an opportunity to improve the quality of the service up, and all that panned out, but at the time, we had a very skeptical reaction, as you remember, from Wall Street. Our stock had gone from, I don't remember the exact numbers, for something like 50 or 60 or 70, down to like 20 or 30 Really, really dramatically down. And I remember calling you, actually, and saying, well, what do you make of all this? I said, look, it depends what you think in short term or long term. Short term, you gotta tough it out. Because you have a bad reaction here. People don't really understand the story yet, it's gonna take some time. It was a pivot, it was bold, it was a good move, but it was a pivot. And investors don't like strategy shift. So you have to accept that. But if long term, if you execute on what you plan on doing, and you deliver the numbers, investors will love it. And it turned out, they did love it, because we doubled the EBIT in two years.

Eli Gross (3:27)

But walk us through that, because I remember having that conversation, it was a Sunday, you gave me a call and you said, what do you think about this? I gave you my initial reaction, it's a pivot.