BREAKINGVIEWS-Construction deal hides market gaps in plain sight

By Jeffrey Goldfarb

NEW YORK, April 11 (Reuters Breakingviews) - A new $11 billion construction project includes a picture window into the secretive side of investing. QXO QXO.N, the latest venture from acquisitive entrepreneur Brad Jacobs, agreed to buy Beacon Roofing Supply BECN.O in a deal that simply puts the enterprise under a different publicly traded roof. It also provides a rare glimpse into divergent perspectives on valuations and time horizons, one holding steady amid trade-war ructions.

Wall Street stress over the public-private divide is intensifying. Amid a slump for initial public offerings, Sam Altman’s ChatGPT owner OpenAI provisionally secured an astonishing $40 billion without tapping broader capital markets. As such funding options expand, JPMorgan boss Jamie Dimon also has lamented the dwindling number of market-listed stocks. QXO is trying to have the best of both worlds.

It is basically a less convoluted version of the many ill-fated special purpose acquisition companies, which are empty shells seeking takeover targets. Because it’s publicly traded, QXO is subject to market gyrations and greater disclosure, meaning it cannot remake Beacon behind closed doors. With nothing but cash in hand, it also lacks the ability to juice profit by cutting overlapping costs or cross-selling, which typically help justify the kind of 26% premium it is paying.

Jacobs is seeking edges elsewhere. His shareholder register, largely assembled with some $5 billion of handpicked equity placements, looks more like that of a private buyout fund. Backers include Orbis Investment Management, started by the late South African billionaire Allan Gray, the AustralianSuper pension fund, and an investment firm led by President Donald Trump’s son-in-law Jared Kushner, who also sits on QXO’s board. Unlike many public shareholders, they’re probably around for the longer haul.

With listed shares, QXO gets the benefit of lower-cost equity to pay employees and motivate them with a performance feedback loop. Jacobs has earned trust by successfully using the formula before. United Rentals URI.N, after more than 250 acquisitions over two decades, has generated a shareholder return of more than 4,000% since 1997. Shipping company XPO XPO.N returned investors 50 times their money over 12 years.

These forerunners explain why, even during a steep fall in public valuations across the construction industry, QXO was able to raise money. And despite tariff chaos causing wild market swings, Beacon shares trade a mere 1% below QXO’s offer price, a rare sign of confidence.

Jacobs is targeting $50 billion of revenue, implying more M&A, accompanied by squeezing suppliers and improving logistics. He may get a shorter leash this time after a roofing company sued United Rentals last week for allegedly violating competition rules. The escalating global trade war is also bound to test the patience of QXO’s capital. Unlike for traditional buyout barons, however, the whole process will be hiding in plain sight.

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CONTEXT NEWS

QXO said on March 20 that it had agreed to buy Beacon Roofing Supply for about $11 billion, including debt, ending a months-long takeover battle.

Morgan Stanley is the lead financial adviser to QXO, which is also being advised by Goldman Sachs, Citigroup, Centerview, Credit Agricole, Wells Fargo and Mizuho. JPMorgan is advising Beacon and its board while Lazard is also advising the board.