It’s only been nine months since news broke that QXO was forming as a force in the building materials distribution space, and while it has yet to make its first platform acquisition, the suspense has the new company as one of the hottest talking points in the industry.

Formed by serial entrepreneur Brad Jacobs — the billionaire behind third-party logistics providers XPO Logistics, XPO spinoffs RXO and GXO Logistics, United Rentals and United Waste — QXO announced its arrival on Dec. 11, but officially launched this summer.

QXO formerly existed as Silversun Technologies before Jacobs Private Equity and co-investors bought it, rebranded it and gained more than $5 billion in private placement as of late July. With Jacobs as CEO, the organization filled out its leadership team predominantly with other XPO former execs for its chief strategy, investment, human resources, communications, transformation, finance and executive vice president positions and a Barclays veteran as its CFO.

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That seed funding will be used to grow the business via acquisitions, but few insights had been shared about what kinds of companies QXO is targeting — much less which specific building materials markets.

Until now.

A new initial coverage article from equity research firm Oppenheimer shed light on some of the company’s go-to-market strategy. These details come on the heels of The Home Depot’s $18.5 billion acquisition of specialty building materials distributor SRS Distribution, which closed in June.

12 Target Verticals

The report, provided to MDM, shared that QXO is eyeing the following 12 specific verticals and that it will likely make one or two acquisitions in them within the next six months:

• Access Control
• Construction Supplies
• Doors & Windows
• Electrical
• HVAC
• Infrastructure
• Lumber
• Plumbing
• Roofing
• Siding & Decking
• Wallboard & Ceiling Tiles
• Waterworks

This means that QXO’s acquisition path is set to include more than just what are widely considered to be “building materials” distributors, rather looking at those adjacent categories for any product vertical typically involved with the complete construction of residential or commercial building — with the exception of pools and landscaping.

This go-to-market strategy would enable QXO to serve the cross-transactional customer who is simultaneously shopping across multiple adjacent building supply categories and looking to consolidate their purchase.

Overall, it would position QXO as a one-stop-shop for these complex pro buyers.

And QXO hasn’t been coy about its aspirations. Its goal is to become the largest and most shareholder value-created building materials distribution company in the world — and in just the next 10 years.

A person familiar with QXO’s plans — who elected to remain anonymous — shared with MDM that the company’s leadership team began its market prospecting about a year ago, when it estimated that there are 20,000 building materials supply companies across North America (13,000) and Europe (7,000). 

On the company’s website, QXO notes the industry has had a 7% compound annual revenue growth over the past five years and a U.S. homebuilding shortfall of about 3 million units that will continue to drive demand. Needed upgrades and maintenance for U.S. public transportation, utility and communication systems, along with reshoring, were also cited as market tailwinds.

“These market dynamics offer a significant opportunity to unlock QXO’s growth potential through scale and technology,” the company states. “National distributors can serve large customers across multiple geographies and project types with standardized efficiencies, providing consistent, data-driven customer services across a broad operating scope.”

QXO’s acquisition targets are likely to be of the large variety, with the Oppenheimer report inferring that the company is in discussions with at least a short list of up to a dozen companies as of early August.

The company now has more than $5 billion of private placement now in its war chest, and Oppenheimer noted that QXO could certainly QXO make its first big splash in the form of acquiring one or two distributors that have combined annual revenues of $5 billion to $8 billion.

So it’s likely that the companies QXO ends up acquiring are currently on MDM’s 2024 Top Distributors Lists for the respective verticals noted earlier.

Meanwhile, QXO has been touting its technological capabilities just as much as its goals to gain scale in product verticals. The company’s website homepage leads off by stating that QXO plans to become a tech-forward leader in the $800 billion building products distribution industry. 

And QXO sees tech as an opportunistic area of improvement for the organization to provide, as the person familiar with the company told us that QXO saw plenty of room for industry technology improvement alongside numerous tailwinds.

“Bigger is Better”

XPO Logistics had a gradual acquisition ramp-up once Jacobs Private Equity became the majority shareholder in 2011 — seven of its first 10 acquisitions represented less than $50 million in annual revenue each before four of the next seven had approximately $600 million or more (three were $1 billion or more).

Conversely, QXO doesn’t plan to start slow. The person familiar with the company told MDM that QXO is leaning into the economies of scale in building products distribution and a “bigger is better” mentality, given the bargaining power that large nationals have vs. smaller firms when it comes to value-added services, volume strength and order accuracy.

“The job site is crying out for the big players to come in and essentially improve the inner workings of how distribution works, and that’s happening in the market,” the person shared with us. “So you’ll end up seeing a very fragmented industry become a consolidated one over the next 10 years, and QXO wants to be part of that journey.”

Industry Reception

So with QXO making its presence and intentions known, what has been the industry’s reception to it? While the new platform could be viewed by some as a disruptor, our source said QXO is being viewed by others as an opportunity.

“There’s been a warm welcome from both the top and bottom end of the industry by those who want to be part of something that is extremely high-growth, tech-forward, something that’s going to be a consolidator in the space and they see Brad’s track record,” the source explained.

What’s Still Uncertain

While all the above provides valuable context as to where QXO’s future acquisition investments may land, we’ll get a much better picture once the new company announces its first one. What that first acquired company will be is still a guessing game, but at least now we have some relative parameters to expect it to align with. We’ll be sure to keep you posted.