NOTE: this was a past issue of my weekly newsletter, Timeless Gems. Join my free mailing list so you don’t miss out on future issues.
Before we jump into today’s gem, be sure to check out the latest issue of Atlasview Insights, Moats: Prioritizing Defensibility in Investments. Our company newsletter is our outlet to share our strategies, experiences, and learnings.
Today’s gem is this podcast episode featuring Brad Jacobs of XPO. XPO is a transportation rollup started by Brad in 2011 after his private equity firm invested $150m. XPO sports a ~$10bn market cap today and has spun out 2 more multi-billion dollar companies: RXO (transportation brokerage, ~$2.5bn market cap) and GXO (warehousing business, ~$7bn market cap).
And if that billion-dollar hat trick wasn’t enough, prior to XPO Brad had executed 2 more rollups with billion-dollar outcomes:
- United Waste Systems, a waste management rollup that Brad sold to Waste Management Inc. for $2.5bn. Waste Management Inc. today has a $70bn market cap
- United Rentals, an equipment rental rollup, which IPOd in 1997 and today has a market cap of $34bn
Clearly, Brad has the formula down for executing rollups (aka inorganic growth), certainly worth studying!
Some key notes from the podcast I jotted down:
- Keep disciplined around purchase price, generally likes businesses at single-digit multiples. Never overpay.
- Never buy a company unless you personally like the seller
- You never get the full picture in an acquisition process, always surprises, undisclosed liabilities, etc.
- Don’t be rigid on your thesis, always be opportunistic, willing to pivot
- Bottoms-up approach post-acquisition: always ask the employees what they think, they know better than you, so don’t tell them what to do
- You can either do large or small deals and hairy or clean deals. Never do a small hairy deal (upside isn’t justifying the effort), and large clean deals just don’t exist (too competitive). So best to focus your time/efforts on large hairy deals – biggest potential payoff so the outcome justifies the inputs.
The podcast is worth listening to, especially if you’re an acquirer of any kind. Enjoy.
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United Rentals was featured in one of my favourite books, Lessons From The Titans. It’s a fascinating business.
