RPT-BREAKINGVIEWS-Serial buyer pushes limit of unmysterious M&A ways

By Jeffrey Goldfarb

NEW YORK, July 10 (Reuters Breakingviews) - There are few secrets to Brad Jacobs’ success. The serial entrepreneur has completed more than 500 deals, divulged his methods in a recent book and is now suitably emboldened to broadcast plans for his latest venture. QXO QXO.N aims to roll up pieces of the building materials industry into a distribution business with $50 billion in sales. The ambitious scale will stretch the boundaries of extreme M&A candor.

Over 46 years, Jacobs has dabbled in everything from waste collection to construction equipment rentals. His XPO trucking outfit grew from $175 million to $5 billion of revenue in five years, partly by devouring peers before carving itself up. A $100 investment from the time Jacobs arrived on the scene in 2011 would be worth some $3,600 today, excluding separate returns from spun-off GXO Logistics and RXO, nearly 7 times what the S&P 500 Index generated.

QXO aims to supersize the feat, again using a structure with an advantageous cost of capital to fund a shopping spree in a fragmented industry. The general idea is to outgrow the market, combining size and know-how to boost profitability and, thus, the company’s valuation. How much Jacobs spends will help determine how much cash flow QXO spits out. Every potential takeover target and rival suitor knows he’s on the prowl and can prepare accordingly.

This has already created complications. Jacobs set his sights on Beacon Roofing Supply to lay the foundation for fledgling QXO, but his prey resisted the $11 billion entreaty for months, prompting a hostile bid that ultimately led to an agreement. QXO then tried to pressure rival GMS GMS.N into accepting a $5 billion offer last month, only for interloper Home Depot HD.N to seal a sweeter deal instead.

Feverish M&A speculation already had lifted GMS’ stock price. For other juicy prospects, investor anticipation and agile rivals threaten to similarly spoil the playbook and make it harder for Jacobs to sustain the same level of patience.

Leaked negotiations alone substantially jack up the median takeover premium, according to research from deal data-room host SS&C Intralinks. At the same time, QXO reckons it’s eyeing 20,000 potential targets in an $800 billion market spanning insulation to waterproofing. Not all of them will be equally appealing, however. It’s too soon to harbor serious doubts about Jacobs’ blunt strategy, but there are bound to be additional hiccups from moving in unmysterious ways.

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CONTEXT NEWS

Building products distributor GMS said on June 30 that it had agreed to be acquired by Home Depot’s SRS Distribution subsidiary for about $5.5 billion, including debt, after it disclosed an unsolicited $5 billion takeover bid from QXO on June 19.

Jefferies is advising GMS, while BofA and JPMorgan are advising Home Depot. Goldman Sachs and Morgan Stanley were advising QXO.