The Intrinsic Value Portfolio currently has two serial acquirers: Chapters Group and Lifco. We initiated both positions in 2026, so we have very little time to assess how successful we are with serial acquirers. They are both starter positions, with a combined weighting of around 3%.

So it may surprise you that today, I’d like to discuss another serial acquirer that is even younger than these two: QXO. QXO will continue its journey of evaluating businesses exposed to the building industry. When I analyzed NVR, I realized the issue wasn’t the economics; it was that we weren’t crazy about the exposure to a highly cyclical market.

But QXO focuses on the building part of homes. And more specifically, on supplying professional builders with the supplies and tools they need to build and renovate homes. The real jewel of being a QXO owner is the partnership you get with their CEO, Brad Jacobs.

Jacobs is one of the best CEOs out there, having scaled over half a dozen businesses into billion-dollar valuations. QXO is his latest creation, and he’s put significant skin in the game to reach his lofty goal of $50 billion in revenue, starting from basically $0 in just 10 years.

Let’s get into it!

— Kyle

There’s an old line that lightning rarely strikes twice. But Brad Jacobs has made a 40-year career of disproving this. In order for investors to capture this lightning, though, they have to pay in advance for the thunder.

Jacobs has succeeded in every business he’s helped run and scale:

And during all this time building companies, he’s built up several highly valuable skills. Those 500 deals built him a wide network of deep-pocketed people willing to do business with him on favorable terms.

As a result of this success, Jacobs decided to see if he could continue rolling up boring industries that weren’t utilizing technology to its full potential. He believed these industries were ripe for consolidation because he knew how to unlock synergies that could rapidly improve margins and deliver significant shareholder value.

In business terms, QXO is younger than a minor. Jacobs formed QXO in January 2024 through an acquisition vehicle that merged with SilverSun Technologies, then disposed of SilverSun's assets after the merger. In 2025, the business rebranded, moved to the NYSE, and successfully completed two transactions: the acquisitions of Beacon Roofing Supply ($11b purchase price) and Kodiak Building Partners ($2.25b purchase price).

So the question we’ll be attempting to answer today is: can Jacobs roll up a moat-less, commoditized industry?

With Beacon and Kodiak, QXO became one of the biggest players in roofing and exterior home products overnight. The Beacon deal was quite the story. Beacon originally rejected the deal and created a poison pill to avoid being taken over. And through this, Jacbos held steady, not raising the bid. Beacon then withdrew the poison pill once they realized they weren’t going to get a better deal elsewhere.

Let’s go over what QXO looks like with the Beacon and Kodiak deals complete. To get pro forma numbers, we can use the info they’ve provided in their latest pitch deck. Current QXO numbers look like:

Just so we can verify these numbers, since QXO is using its modeling to arrive at them, we can look at the full-year 2025 numbers. They had sales of $6.8 billion, AEBITDA of $647.8 million, and an AEBITDA margin of 9.5%. These numbers muddy the waters, but since Beacon and Kodiak are not on the consolidated financials for a full year, it’s pretty tough to gauge precisely where they stand.

With the Beacon and Kodiak deals now closed, QXO moved on to making its most aggressive acquisition yet with TopBuild. The TopBuild deal will reportedly close in Q32026 and is valued at $17 billion — While the price tag was high, the pro forma numbers are very attractive if they play out as QXO thinks.

The combined business will generate $18.1 billion in revenue. But the real kicker is in the margins, where they see adjusted EBITDA (AEBITDA) margins expanding to 12%, producing $2.1 billion in AEBITDA. TopBuild has very nice margins, and if they can land more TopBuild-type deals, then they shouldn’t have much of a problem with their 15% AEBITDA target.

Unlike most of the serial acquirers we’ve covered on this show, QXO doesn’t run its subsidiaries in a decentralized manner. Instead, it absorbs its targets and unifies them into the QXO brand. They become fully integrated. This can be a bonus if a business executes at a high level.

I mentioned in the intro today that QXO’s long-term plan targets $50 billion in revenue and about $7.5 billion in Adjusted EBITDA. This assumes an AEBITDA margin of 15%. Even with the top build acquisition, they probably won’t make it there quite yet.

In my view, they have four levers to pull on to continue to expand margins:

If you are looking to see whether Jacobs has had any success with this, we can look at his last business venture at XPO. While CEO of XPO, Jacobs juiced the margins from 1.7% to 10%. But even as Chairman, margins still expanded up to 14% by the time he left that position in 2025.

In my early 20s, I briefly worked as a roofer. I remember picking up supplies I’d need to do the job and going to a place that would have been a QXO competitor. I bought several items, and my employer bought them on credit. I went to that place specifically because my employer had a relationship with that shop. So if QXO can build relationships with builders and offer them a better product mix, they should be able to retain customers while increasing their average basket size.

QXO’s playbook isn’t just about optimization, though. To reach their revenue target, M&A will be the primary driver of growth. Jacobs has done over 500 M&A transactions over his career, so it’s an area he’s very familiar with.

It’s rare to admit that a person is a company's competitive advantage, but in QXO’s case, that is exactly what it is. Buffett wasn’t a fan of this because he believed a superstar management team couldn’t salvage a mediocre business. But Jacobs has shown that he’s the exception to this rule.

Let’s get some of the uglier parts of QXO out of the way first. The business has low switching costs; customers will gladly switch if a better price or service is available elsewhere. The industry tends to be cyclical, meaning top-line growth and margins can fluctuate depending on where the cycle is. Although TopBuild has shown considerable revenue resilience, its margin profile remains volatile.

But the Brad Jacobs effect is real. If you want a name for this type of moat, we can look right at Hamilton Helmer’s 7 Powers. Helmer calls it a cornered resource. A cornered resource is essentially IP. The important nuance of a cornered resource is that it would be just as valuable in a competitor's hands. If the value diminishes as part of another competitor, it’s not a cornered resource.

What does Brad Jacobs bring to QXO that other businesses in the roofing and supply industry can’t? Beyond optimizing a business’s margins and leveraging engineering-scale advantages, few can replicate Jacobs’ ability to raise capital on favorable terms. A smaller building supply company might try to consolidate, but are they going to get access to $5 billion on a handshake? Dream on.

And even if they could get access to this capital, would they be able to deploy billions of dollars successfully? It’s not as easy as Jacobs makes it look.

I mentioned earlier that TopBuild has been able to buck some of the revenue trends of the homebuilding cycle, but let’s look at another solid business inside roofing and roofing supplies, Builder’s First Source. Builder’s First Source is a direct QXO competitor.

And one of the issues with that business is how volatile the top- and bottom-line numbers can be. They are largely governed by external forces, such as the building cycle. While the business can have great numbers when the cycle is going up, it can also see significant margin compression, which you’re seeing right now, with EBITDA margins contracting from a high of 19% in 2022 to 8% today.

Every new home built or renovated will require something QXO sells. So if people are unwilling to buy a new home or renovate their current one, it will directly affect QXO’s revenue. Perhaps part of the appeal of the Beacon and Kodiak deal was that current market conditions had depressed their margins for similar reasons as Builder’s First Source. If that’s the case, QXO should get a margin expansion effect simply from mean reversion.

The big issue I see with QXO is that the business will carry heavy debt loads for the foreseeable future. Even if their estimates are correct after the Top Build deal closes, and they are doing $2.1 billion in AEBITDA, they will continue to use leverage and their own shares to buy more businesses.

Here is the current debt stack:

$200 million in annual interest expenses doesn’t seem dangerous, but then you have to consider that QXO’s run-rate operating cash flow is $280 million as of the latest quarter. Perhaps the last quarter just wasn’t that good, but it means nearly all of the cash QXO is generating is going toward paying down debt.

But the important consideration here is that the debt does not currently include the TopBuild deal. This deal is comprised of:

This gets pro forma debt post-TopBuild to about $9.1 billion and puts net debt-to-EBITDA in the 4.75x area. I’m a huge fan of serial acquirers, but I prefer they stay in the 2x-3x range, and the lower the better. I’ve watched leverage spiral upward in other serial acquirers I’ve owned, and I don’t like seeing that when the business is in a down cycle, because it loses optionality.

To be fair, TopBuild should generate significant cash flow. The leverage ratio will compress, especially if synergies boost margins beyond projections. It’s just that, given the short operating history, it’s really tough for me to have conviction that this will happen.

The more I think about this problem, the more I imagine Buffett lecturing me about his two rules of investing. Which is not to lose money. Not having debt means you don’t have a quick path to zero. 5x leverage in a cyclical industry (facing a continuously weak market) means you have a potential path to pain.

One of the big lessons I learned from reading Brad Jacobs second book, How To Make A Few More Billion Dollars, was in how he thinks about dilution. He writes: “I've diluted my own stock holdings plenty of times over the years. I've gone from owning 90% of a company to 10%, but that 10% ended up being worth a whole lot more than the original 90%. The capital influxes fueled a much larger gain than the temporary loss from dilution.”

So it’s not a surprise that QXO has already undergone significant dilution. As of today, there are approximately 744 million shares outstanding. But there are an additional 492 million shares in the share structure. And this doesn’t include the shares from the TopBuild acquisition (which could add 200-260 million new shares).

In my modeling of the business, I assumed that the share count would increase at least twofold over the next few years.

But dilution can work if you are creating a ton of value for shareholders. And as Brad pointed out, he has done that in the past. I’m not sure there is a better case study out there than that of Henry Singleton and Teledyne. Singleton was outlined as one of the outsider CEO’s in William Thorndike’s great book The Outsiders.

Singleton was a master of capital allocation within Teledyne. In Teledyne’s early days, he used expensive Teledyne stock as currency to continue rolling up highly technical niche businesses. This process increased Teledyne’s share count by 14 times, a frighteningly high number. But at the same time, Singleton was generating immense per-share value. During that same period, earnings per share (EPS) grew 64 times. So while it’s very important to monitor if you will be diluted, it’s even more important to factor in what exactly will happen to EPS.

This strategy only works if the capital allocator is able to do a few things perfectly:

QXO has shown an ability in capital allocation that I think displays how good they are at rolling this. industry up. With Jacobs's vast experience, he understands how to find a good deal and, just as important, how to walk away when the price isn’t right.

Many CEOs are very good at running their businesses, but when you require them to move out of their circle of competence into areas like capital allocation, they tend to be average or even below average. But Jacobs specialty is in capital allocation.

In QXO’s short history, Jacobs has walked away from more deals than he’s closed. He let Home Depot pay up for Gypsum Management & Supply when they outbid QXO. When he put in a bid for a French building-materials distributor, they rejected it on price, and Jacobs didn’t budge, keeping that business public.

When it comes to QXO’s comp structure, I have mixed feelings. On the one hand, I think it’s great that insiders own abour 41% of the company. And Jacobs himself invested a pretty decent chunk of his net worth in the business to help get it started.

But the comp structure isn’t my favorite. In 2024, Brad Jacobs and the CFO made a combined $226 million in compensation, much of it in options. And even the incentives for the options aren’t great, as RSUs vest as a large chunk of compensation. The PSUs compare QXO’s performance but only require 55th-percentile results, which doesn’t strike me as overly inspiring.

So even though I like how Jacobs eats his own cooking, I think the compensation structure could have been structured better to more closely align management with shareholders. I would have loved to see the long-term incentives be based on a per-share metric. While I don’t like AEBITDA, even if they had incentives based on AEBITDA per-share growth, I think that would be an improvement and provide value for both shareholders and management.

I haven’t yet addressed QXO’s evaluation. And that’s because I think it’s crucial to understand QXO’s business model in a little more detail before establishing QXO’s fair value. Give the numbers I’ve put out today, post TopBuild deal of: revenue $18.1 billion, AEBITDA of $2.1 billion, with margins of 12%, what do you think a business like that is worth?

It’s not an easy question to answer because there are many variables. Will the TopBuild deal close? I think there’s a very high possibility it does. Then you have to assume metrics based on whether these margins are realistic. Then, after that, you have to assume market conditions remain the same, or preferably improve.

As of now, QXO has a market cap of $12.09 billion dollars. If we look at trailing metrics, it’s expensive as hell at 108x EV/EBITDA. But this doesn’t account for the TopBuild acquisition. If we do account for that, it has an EV/EBITDA of 7.2. So, in my view, buying this really comes down to the certainty and conviction you have about what QXO will look like post-TopBuild.

For the base case, I assume revenues compound over the next five years at about 35%. While yes, this is high, we have to remember that QXO will have very high revenue growth from its acquisition strategy. So, in the base case, I assume the Top build deal works out, and they layer a few more large deals on top of it.

I also assume they reach theyir 15% margin goal. I give them a 15x EV/AEBITDA multiple, assuming they maintain significant debt. I also assume meaningful 2.5x share dilution over the next five years.

For the bear case, my assumption is that the TopBuild deal still closes, but they don’t realize their margin goals. I also assume that the current cycle suppresses revenue, and revenue grows at “only” 20%. I know, I know, this is high revenue growth for the bear case, but in the bear case, I assume they reach the post-TopBuild revenue target a full four years after the deal closes, so I still see this being very bearish.

I also assume that the procurement, cross-selling, and back-office synergies don’t work as well as expected, meaning margins only reach 12%. My bear case also assumes higher debt loads and dilution. The rationale here is that if QXO doesn’t have an attractive share price, it will further dilute its equity when using its own shares as currency.

Assigning probabilities to these, I assign a 50% probability to the base case, 35% to the bear case, and 15% to the bull case. If everything goes the way Jacobs envisioned and they hit the bull-case targets (and they approach that $50 billion revenue mark), the returns will be very good for many years, but given where margins are today, I still give it a pretty low probability.

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