Billionaire Brad Jacobs plans to make a big play in the housing market. Here's why

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Last week, billionaire Brad Jacobs, who has founded seven companies, including United Rentals, currently ranked No. 355 on the Fortune 500 list, announced that he had identified the next sector he’d like to disrupt: the building-products distribution industry.

Jacobs, the executive chairman of the truckload carrier XPO, which is No. 478 on the Fortune 500 list, has a proven playbook, which involves growing through numerous acquisitions.

To understand why Jacobs will soon turn his attention to building-products and the U.S. housing market, ResiClub spoke with Jacobs.

“I’m going to build a large building products distributor,” Jacobs tells ResiClub. “I’ve started seven companies that all became billion or multi-billion dollar companies… I want the advantage of size, economies of scale. I want to be able to lower costs.”

Jacobs will assume the role of CEO for this building-products distribution company, named QXO. Jacobs Private Equity, where Jacobs serves as the managing partner, has already invested around $1 billion into the new company.

“There are $20 and $30 billion dollar players already. Builders FirstSource [$20.6 billion market cap], you got Ferguson [$39 billion market cap]. Great companies, real fine companies. But I’m planning to do something larger than that,” Jacobs tells ResiClub.

I then asked Jacobs how he plans to scale up so fast?

“Primarily through acquisitions. If you look at my background, the teams I’ve led have done 500 acquisitions. M&A [mergers and acquisitions] is a tool in my tool kit I’ve used quite a bit,” Jacobs tells ResiClub. “I think there’s a lot of room for creative M&A in the building products distribution space. The market is highly fragmented. You have 7,000 distributors here in North America, and almost twice that 13,000 in Europe. Most of them are private.”

His business thesis is that “size is your friend” in this sector because it “improves your purchasing power and drives better margins,” and right now the space is simply too fragmented.

How much of his business will be in the residential construction space?

“Homebuilders will certainly be customers. They buy a lot of building products. I haven’t disclosed what ratio we're going to have, which end markets we’re going to penetrate the most,” Jacobs says, adding that they’re looking at building product distributors in the residential and non-residential space. “Part of that isn’t determined yet. It’ll be determined by opportunities, we’ll be opportunistic, we’ll see what’s available and at what prices.”

I asked Jacobs what he likes about the building materials space.

“What I like in terms of the long-term for housing is that you have secular growth. There’s a mismatch between [housing] supply and [housing] demand, the average house is over 40 years old and that’s going to spur more construction over time. Depending on which statistic you look at, we’re like 3 million units short of housing in the United States—that’s a big shortfall. And because of the age of the houses, you’re going to see a lot of repair and remodeling. I think between the construction of housing that’s going to be necessary in the coming years, and the need to repair and remodel, I think there will be fairly good demand for building products distribution. Now, there will be ups and downs depending on the [housing] cycle, but generally speaking this perspective means clearly long-term demand for building products,” Jacobs tells ResiClub.

Conscious of the looming economic disruptions from artificial intelligence, Jacobs wanted to make his next business play in a space that couldn’t easily be disrupted by AI.

“Residential housing is not going to be disrupted by AI. It’s not going into the metaverse. You’re going to need a physical house, and sleep in a physical bed, and you’re going to still take a shower in a physical shower. So it’s not going away, not going to be disrupted by technology. There are a lot of other industries I looked at last year and couldn’t say that about them… 5 or 10 years from now they might not have a good future,” Jacobs says. “I think residential construction is not going to be replaced by a hologram.“

Last week, ResiClub shared this chart with readers. I made an error and omitted the purchase total for Progress Residential, which acquired 1,140 homes over the past three months. Here’s the updated chart 👇

Next week, ResiClub PRO members will get an article titled “The lock-in effect, as told by 2 maps”