Billionaire entrepreneur Brad Jacobs, who launched LTL carrier XPO and its later spinoffs, is turning to what he calls his “playbook” once again to seek out opportunities in a different sector.
The sector? We don’t know yet and he’s not saying.
In an eventful Monday morning for Jacobs, the current founder and CEO of building supplies provider QXO, which has been established in the past few years also through the playbook, said he and a minority shareholder were acquiring a small publicly-traded company with various natural resources assets and injecting it with $1 billion in capital.
That announcement early Monday came alongside the quarterly earnings of QXO. While the company’s stock has struggled in recent months, reaching 52-week lows several times, at approximately 2:10 p.m. it was up $2.38, or 20.59%, to $13.94.
Billion dollar investment
Jacobs’ plan for his new company is similar to how he created QXO. His family office, Jacobs Private Equity (JPE), along with HRTG Partners, will make a $1 billion investment in a company called CKX Lands. That company closed last week with a market cap of approximately $21 million. It has oil and gas interests, as well as timber lands.
JPE will kick in $900 million of the investment, with HRTG supplying the rest. Jacobs will become chairman and CEO of the company, which has not yet been renamed.
CKX (NYSE American: CKX) is publicly-traded on a small-market subsidiary of the New York Stock Exchange. And Jacobs throughout his career has always had his various investment vehicles be publicly-traded.
Here’s how it’s done
The “playbook” generally involves buying companies in a fragmented industry and rolling them up into a much larger firm, often with logistics efficiencies as a driving factor. That was the idea behind QXO: buy a small publicly-traded company in a field that doesn’t have anything to do with what Jacobs ultimately targets. It gets renamed. And then the mergers & acquisitions begin in the field identified by Jacobs as its target for a rollup.
In the case of QXO (NYSE: QXO), it began life as software provider SilverSun Technologies. In late 2023, Jacobs took it over. (SilverSun remains inside QXO).
And the similarities between the SilverSun acquisition and the CKX deal are almost spooky: Jacobs puts in $900 million, private equity puts in another $100 million, and the company that he acquires is worth $20 million. That is about what SilverSun was worth in late 2023 and CKX was worth last week, before the Jacobs deal sent its stock up more than 100% by 1:20 p.m..
The private equity partner also didn’t change. In 2023, it was Sequoia Heritage. But that company is now named HRTG Partners, and it put up $100 million in both the QXO and CKX deals.
How long will we wait to hear?
As far as what industry Jacobs will take his new venture into, note that when SilverSun was acquired there was no disclosure at the time about what field he might pursue. But the announcement that SilverSun was being renamed QXO and was going into the building products industry came less than two weeks after the $1 billion investment.
But Jacobs said on the call he was still looking to determine what industry his new acquisition would invest in, asking for recommendations from the analysts listening in.
“The industry for my new venture is still to be determined,” Jacobs said in the QXO earnings call with analysts. “Once we close the investment, CKX will become a platform for growth, operating as a standalone public company under a new name.”
In response to an analyst question about the potential target for whatever comes after the CKX acquisition, Jacobs said “the journey begins today and we’re in no hurry.”
“It could happen real fast,” he said. “It could take a little more time and we’re very patient about that.”
Jacobs stepped down as chairman of XPO (NYSE: XPO) and third party logistics provider GXO (NYSE: GXO) last December to focus on QXO. But on the call with analysts, Jacobs said Monday that the move also “gave me the capacity to create this new venture while continuing to lead QXO to its massive potential.”
On the earnings call with analysts, Jacobs stressed several times that he was going to continue as chairman and CEO of QXO.
The most important positive number in the QXO earnings was that it had adjusted EBITDA of about $557 million, up 85% from $301 million a year earlier.
QXO’s net sales rose to just under $4.9 billion from $2.7 billion a year earlier. Net margin improved to negative 2.5% from negative 5.1%, and the adjusted EBITDA net margin rose slightly, to 11.4% from 11.1%.
It is not an apples-to-apples comparison; QXO acquired insulation supplier and installer TopBuild on July 1.
QXO’s net sales rose to just under $4.9 billion from $2.7 billion a year earlier. Net margin improved to negative 2.5% from negative 5.1%, and the adjusted EBITDA net margin rose slightly, to 11.4% from 11.1%.
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