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QXO completed its first big acquisition last year in its bid to consolidate the fragmented building products distribution industry.
Analysts and industry observers think another acquisition is near.
Apollo Global is leading a new $1.2 billion investment in QXO, and it comes with a telling catch.
Shares of building products distributor QXO (NYSE: QXO) hit a new 52-week high this week. That came after the company announced a new investment, sparking speculation about pending acquisition activity.
As of Friday morning, QXO stock was up 23% this week to a new high, according to data provided by S&P Global Market Intelligence. Investors are reading the tea leaves from some details in a new $1.2 billion investment deal with a group led by Apollo Global (NYSE: APO).
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Image source: Getty Images.
Entrepreneur Brad Jacobs founded QXO in late 2023 to consolidate a fragmented building products distribution industry. Jacobs formerly also founded United Rentals and XPO Logistics.
QXO's first significant acquisition was for Beacon Roofing Supply last year, valued at approximately $11 billion. QXO aims to be "the tech-enabled leader in the $800 billion building products distribution industry." The company is pursuing an acquisitive strategy, aiming to grow sales to $50 billion within the next decade.
This week, it announced an agreement for an Apollo-led group to invest $1.2 billion in QXO through a new issuance of convertible preferred shares. One requirement is that the investment, offering a 4.75% annual dividend, must be utilized to finance one or more eligible acquisitions by July 15, 2026.
That's led industry insiders to speculate that QXO is in advanced talks for another major acquisition. Trade publication Roofing Contractor reported that QXO is actively in talks with seven possible acquisition targets. The report suggests that a potential deal could come for various-sized companies.
A QXO spokesman provided the following statement: "Our target outcome for any acquisition is to approximately double EBITDA within three to five years through integration, technology upgrades, and disciplined cost management."
The Apollo investment news has led more investors to want to be a part of what Jacobs intends to grow, it seems.
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Howard Smith has positions in QXO. The Motley Fool recommends XPO. The Motley Fool has a disclosure policy.
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