QXO: an operating system for industrial compounding

As with any investment, your capital is at risk.

Want to know how to make a few billion dollars? Serial entrepreneur Brad Jacobs might be the man to ask. Following exceptional success improving companies such as United Waste Systems, United Rentals and XPO Logistics, Jacobs has quite literally written the book (How to Make a Few Billion Dollars by Brad Jacobs | Goodreads).  

The insight at the heart of his secret to wealth generation is deceptively simple: enduring value creation is rarely about financial ingenuity, but about building systems that work better, for longer, than those around them. Jacobs’ application of this insight has followed a consistent pattern – identify a large, fragmented industry; impose operational discipline; allocate capital patiently; and allow time for compounding to work its magic. 

Jacobs’ latest iteration of this approach, QXO, was listed on the New York Stock Exchange in early 2025. This unusual name is abstract by design, reflecting an ambition not tied to any specific industry, product or end market. QXO represents an approach to management - an operating system - capable of being applied repeatedly across large parts of the physical economy.  

Buying beacon  

That ambition took concrete form in April last year, when QXO acquired Beacon Roofing Supply. With that transaction, QXO became the largest publicly listed distributor of roofing, waterproofing and related building products in North America. The business operates roughly 600 branches across the US and Canada, serving more than 100,000 customers. 

Crucially, around 80 per cent of Beacon’s revenues are tied to repair and replacement rather than new construction. Roofs leak regardless of the economic cycle, and repairs are rarely deferred for long. This gives the business a steadier demand profile than many parts of the construction ecosystem and provides a dependable cash-generative base from which to grow. 

The attraction, however, is more than just exposure to the glamorous world of roofing repairs. Global building products distribution is an $800bn industry, highly fragmented and still strikingly analogue. Many businesses still rely on manual processes and legacy systems across inventory, logistics, and customer management. Pricing is often opaque and reflective of local relationships rather than being data-led. This combination of scale, fragmentation and operational inertia offers fertile ground for improvement. 

Trust the process 

QXO is best understood as an operating system in the making. Since acquiring Beacon, management’s focus has been on doing the basics, better. This has included actions such as introducing modern warehouse and transport systems, using data to improve product availability and avoid overstocking and simplifying organisational structures. Visibility of data is key, and employees are subject to strict and stretching performance monitoring.  

None of this is radical. All of it is difficult to execute consistently, particularly at scale. Small improvements in stock availability, working capital efficiency, procurement discipline and pricing can translate into meaningful gains in margins and free cash flow over time. 

Following several meetings with Jacobs last year, we decided to take a holding in QXO for the Global Alpha portfolio. In our view, the market underestimates three things:

• First, the scale of improvement still available from operational discipline in this industry
• Second, the breadth of the opportunity set. Roofing is the starting point, not the destination, and many adjacent distribution categories share similar inefficiencies and economics
• Third, the discipline with which capital is likely to be deployed. With acquisitions a key part of the growth case, willingness to walk away from contested assets matters as much as winning deals

Portfolio context 

At the industry level, QXO represents exposure to construction activity, even if repair-led demand is less cyclical than much of the industry. Much more importantly, however, our investment case rests on exceptional execution. Technology enabling real-time visibility into inventories and orders must be embedded in daily decision-making, and a culture that rewards performance and transparency must be embraced throughout the organisation.  

In this sense, QXO adds a differentiated source of growth. Returns are driven less by shifts in consumer behaviour or rapid technological adoption, and more by sustained execution. The disciplined application of the Jacobs playbook of operating system + technology + incentives. This approach is an example of the ‘quiet power’ of roll-up stories such as QXO, which we discussed in our Global Alpha Research Agenda (Global Alpha Research Agenda 2025) in action. 

Ultimately, our holding in QXO reflects a belief that durable value can be built through systems that compound quietly. ‘A few billion dollars’ can be accumulated through the patient compounding of operational improvements, translating into vastly superior financial outcomes over time. 

Risk factors

The views expressed should not be considered as advice or a recommendation to buy, sell or hold a particular investment. They reflect opinion and should not be taken as statements of fact nor should any reliance be placed on them when making investment decisions.

This communication was produced and approved in February 2026 and has not been updated subsequently. It represents views held at the time of writing and may not reflect current thinking.

Potential for profit and loss

All investment strategies have the potential for profit and loss, your or your clients’ capital may be at risk. Past performance is not a guide to future returns.

This communication contains information on investments which does not constitute independent research. Accordingly, it is not subject to the protections afforded to independent research, but is classified as advertising under Art 68 of the Financial Services Act (‘FinSA’) and Baillie Gifford and its staff may have dealt in the investments concerned.

All information is sourced from Baillie Gifford & Co and is current unless otherwise stated.

The images used in this communication are for illustrative purposes only.

10061004