The Relentless Obsession of Brad Jacobs

KEYPOINTS

• 01

  A CEO's report card has one question: how much money did you make your shareholders?

  Brad Jacobs has founded companies including United Rentals, XPO, GXO, RXO and now QXO. He says he has returned 32 times invested money in one company and over 150 times in another. That happened five times in a row, which he argues is a playbook, not luck. The goal is alpha — beating the tide that lifts all boats. Investors had a thousand other places to put their money and picked you, so you're a fiduciary with a 'solemn, sacred' duty to multiply it.

• 02

  Get the main trend right and you can mess up a lot else.

  His late mentor Ludwig Jesselson taught that the right trend makes money despite mistakes, while the wrong one means swimming upstream. Jacobs deliberately maps the context, origin, current conditions and possible catalysts for each situation. Today the number-one trend is AI. He met Ray Kurzweil, which felt like meeting Einstein, and thinks Kurzweil is probably right that humans will merge with their technology.

• 03

  Be a musical business person: improvise.

  Jacobs sees himself as a musician first. He studied with Milford Graves and Bill Dixon at Bennington, where there's no wrong note — just a new one. Rigid multi-year plans fail because markets, economies and people change. In 2015 XPO, built as an asset-light broker, pivoted to buy Con-way, an asset-heavy trucking company. Con-way had three HR and three IT organisations and a top-heavy, spaghetti org chart. 'If you can find something that's messed up and easy to unmess up — boo-yah, there's your money.' The market punished the pivot at first. The roughly $3 billion purchase (about $1.5 billion of equity) is now worth around $15 billion after about $5 billion of cash was taken out.

• 04

  M&A starts with picking the industry, and price is the biggest lever.

  Over about 500 acquisitions, he looked at thousands more. For QXO he studied dozens of industries and chose building-products distribution: about $800 billion of distributors in North America and Western Europe, roughly 20,000 companies, and only six or seven serious about technology. Taking about 6% would make a $50 billion company. The biggest value lever is the spread between his cost of capital and the multiples he pays. The second is improving what he buys.

• 05

  Anybody can buy a company; the hard part is integration.

  Integration starts at signing. On the day a deal closes, systems get standardised: one ERP so the books close promptly, identical dashboards so every location can be benchmarked, one HR system, one CRM and one internal social network. Private-equity roll-ups that bolt companies together for a higher multiple leave a mess for the next buyer. In diligence he interviews the top 15 or so people one-on-one: if it were your money, would you buy it? What would you change, and what would we be crazy to change?

• 06

  Non-judgmental concentration: join, then lead.

  After stepping down from United Rentals in the mid-2000s, he fell into the only depression of his life. That led him to Albert Ellis and Aaron 'Tim' Beck, the co-founders of cognitive therapy, plus two years of therapy at three hours a week. Therapists taught him to create a safe space, give 100% attention, and validate before disputing. He uses this with employees, sellers and angry customers: feel what they feel, show you heard it, then present the action plan.

• 07

  Leverage: not too much, not too little.

  Zero debt isn't optimal, since some leverage shrinks the share count. But companies only go bankrupt from too much debt, and geopolitical shocks or a COVID-style slowdown punish it. QXO targets one to two turns of EBITDA. With Con-way XPO briefly went above four times, then sold the truckload unit for $550 million and used free cash flow to pay down debt.

• 08

  Pay for performance relative to the market.

  He wants raw capitalists. Senior equity shouldn't vest below about the 55th percentile of total shareholder return versus the S&P 500, and should double-vest at the 90th–95th. That way shareholders hope management makes a fortune. From Goldman's old partnership he borrowed paying people partly for how many colleagues say they helped them.