Chapter 1: What is the main topic discussed in this episode?
Hello, I'm Stephen Carroll. I'm in Brussels, where many of Europe's biggest decisions get made.
And I'm Caroline Hepke in London. We're the hosts of the Bloomberg Daybreak Europe podcast.
We're up early every weekday, keeping an eye on what's happening across Europe and around the world.
We do it early so the news is fresh, not recycled, and so you know what actually matters as the day gets going.
From Brussels, I'm following the politics, policy and the people shaping the European Union right now.
And from London, I'm looking at what all that means for markets, money and the wider economy.
We've got reporters across Europe and around the globe feeding in as stories break.
So whether it's geopolitics, energy, tech or markets, you're hearing it while it happens.
It's smart, calm and to the point.
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Chapter 2: How does Brad Jacobs define the old economy versus the new economy?
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. One exception. Which one? ExxonMobil. You didn't find that one?
No, no.
I wish I had. One that got away. construction equipment rental and garbage stuff, like anything real and physical. That's what Brad's into. He's founded 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 Top Build 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 like talk about like, who is this company Top Build? What do they do? Tell us a little bit about this, the history and the footprint of this company that you're buying. Top Build 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. 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? 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, Top Build itself has single-digit percentage exposure to data centers, but it's very fast-growing. Wait, sorry, say that, how much exposure? Single digit percentage of the revenue.
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Chapter 3: What recent acquisition did QXO announce and why is it significant?
So how did Top Build actually get on your radar? Did you initially approach them? Did they approach you? We approached them.
Absolutely.
We approached them first. Yeah. Okay. So now I'm very curious because I know you have a lot of experience in M&A and, you know, 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 am not yet a billionaire, but I did read the book. Yeah.
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 detectives.
He was on your podcast.
Yeah, yeah. Yes, yes. So did he interview all the CEOs? They all went through background checks and that sort of thing? Yeah. 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 Top Build came up, including the CEO and CFO.
And yeah, we interviewed each one for like an hour and a half and got to know them and they checked out. Everything they said was true. I love that. Interview two guys for an hour and a half. It's like, 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? Oh, yeah.
So talk to us about that.
Well, we have a lot of the same customers. We have a lot of the same vendors. Big, big overlap. So Top Bill is a very well-known company. It's the number one company in its field. So it's pretty easy to check them out. We knew what we were getting before we did those interviews over two days. But still, you want to talk to the people.
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Chapter 4: What are the synergies expected from the acquisition of TopBuild?
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. 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. 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. And 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. I love a business that's 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, or 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, you know, maybe some businesses that didn't have that expertise in-house are like, maybe we'll build this solution on our own rather than hire, et cetera. 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 you at the negotiating table when you're re-upping negotiation for seats, et cetera, where you have a little bit more, you can cancel deals or get better pricing. Talk to us about what's going on. Not really. I mean, a lot of our technology is homegrown. We have a lot of people we've hired from Microsoft and from other, other big. Sure.
But you're not like building your own like payroll software, right? Well, we still, we still outsource.
That's what I'm saying.
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Chapter 5: What role do data centers play in the insulation market's growth?
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 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 a good steward for something they've built up over 10, 20, sometimes 30 years. So yeah, it does make a big difference.
Wait, I'm going to put you on the spot now. But when you were negotiating on the top bill deal, what was like the biggest sticking point that you had to haggle out? What was the biggest point of contention? 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, they're very similar cultures in 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, my teams and I have done over 500 acquisitions. So there's a lot of stuff in common that we had a lot of mutual affinity and respect over. By the way, I know this is no longer your 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 like 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? 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 Horex'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.
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Chapter 6: How does the insulation market differ between residential and commercial sectors?
It's just done an amazing job at it. It's just executed very, very, very, very well on that. And that's why the stock has performed so well. But 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, this company doesn't do so well. So management matters. It matters a real lot. But again, I know you're not, you know, on a day-to-day basis with XPO now, but do you get the sense that the trucking cycle has turned? JB Hunt's in no time high too. Yeah, a meaningful uptick in freight. There are...
Several important gurus, analysts, and industry experts in trucking who have called a turn in the last couple of months. We'll see. A couple of 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. I just have one last question. I guess it's basically about the business environment. 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? Weather out of your control. Oil price is going to be a factor.
Energy price is going to be a factor in any sort of real goods space. Another thing that's out of your control. 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 consumer sentiment's pretty negative, et cetera. And even business sentiment, when I 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 like 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? 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.
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