Brad Jacobs’ next venture is ready to start acquiring companies, backed by a war chest of $5 billion.
With two recent private placements completed or soon to be done, QXO now has that amount in hand and no debt to pursue acquisitions in a building products industry that was described late last year as “highly fragmented” and includes some 7,000 distributors in North America and an additional 13,000 in Europe.
Jacobs is chairman and CEO of QXO (NASDAQ: QXO). He also was the founder of the XPO logistics conglomerate before breaking it up.
QXO announced Monday that it had raised $620 million in a new private placement of equity for the publicly traded company. That private placement was for approximately 68 million shares, which carried a price tag of roughly $9.14 apiece.
The other recent transaction to bolster the balance sheet of QXO is a private placement of $3.5 billion. That was announced several weeks ago and will close Thursday.
In a prepared statement announcing the $620 million placement, QXO laid out the sources of the $5 billion war chest: the $620 million private placement, the $3.5 billion private placement, an investment of approximately $900 million from Jacobs Private Equity (the investment arm of Brad Jacobs) and $100 million from Sequoia Heritage and other co-investors.
“The Company intends to use the proceeds of these investments to grow its business through acquisitions,” QXO said in its statement.
Investments in the $620 million private placement include $150 million from Affinity Partners, which was founded by Jared Kushner, the son-in-law of former President Donald Trump. QXO said Kushner will join the company’s board as an independent director. There are five independent directors on a board of seven.
(Another independent director is Allison Landry, a former Wall Street transportation equity analyst. Landry was an insurgent candidate for the board of Norfolk Southern when that company’s management was opposed in a proxy vote by Ancora Associates, an effort that in May did elect three directors to the Norfolk Southern board but did not oust CEO Alan Shaw. Landry’s candidacy came up short. Landry was named to the QXO board soon after and is vice chair.)
With QXO in the early stages of its life under Jacobs, there is an enormous disconnect between the share price in the private placement – which were common shares – and what the small amount of stock float is doing.
QXO stock closed Monday at $61.12, on volume of just under 40,000. That low volume is actually high for the company, as average daily volume is reported as less than 25,000.
The relatively small number of shares trading in the open market means the current share price yields a market capitalization of $40.6 million for a company that now has $5 billion in cash on the balance sheet.
Given that the price in the private placement is well under the open market price, one analyst said the $9.14 price in the private placement is more a reflection of the long-term value of the company, rather than a price whose stock has climbed in part because of the allure of Jacobs and his long successful track record.
Jacobs built the XPO conglomerate before launching its disaggregation in recent years. Two of the companies that were created from taking apart XPO (NYSE: XPO) are RXO (NYSE: RXO), the brokerage firm, and GXO (NYSE: GXO), the global contract logistics operation. Jacobs remains executive chairman of XPO, which is now a pure-play LTL carrier, while he is non-executive chairman at XPO and RXO.
QXO was created in an unusual manner. The $900 million from Jacobs’ private equity firm and $100 million from Sequoia Heritage were invested in a software company called SilverSun Technologies in a transaction announced last December. At the time, the company’s market capitalization wasn’t much more than $20 million.
SilverSun traded on Nasdaq, unlike XPO and its spinoffs which are all on the New York Stock Exchange. The legacy software operations are still within QXO, reversing an earlier decision to spin them off. But QXO now has been transformed into a company with several billion dollars of financial firepower to make acquisitions in the building materials industry.
And while QXO seems a long way from the trucking history of XPO and its spinoffs, one analyst said the long-range vision Jacobs has is that a building products company built on numerous Jacobs is still in the same business.
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