Although he still has work to do to wrap up the last XPO spinoff, he’s already looking ahead to building up a new company.
“It’s the best possible time to start a business when valuations are low and capital is tight, so I’m looking forward to the hunt,” Jacobs, 66, said in a Bloomberg TV interview on Oct. 11 while participating in the Greenwich Economic Forum.XPO will keep the lucrative less-than-truckload business, which is a more consolidated sector of the trucking industry and has higher margins than long-haul transportation. GXO, a warehouse operator, was spun out last year, and RXO, an automated freight broker, will begin trading as a separate company on Nov. 1. Jacobs will be chairman of all three companies but otherwise will be free to search for his next venture.
Investors know they can’t predict future outcomes based on past results, but Jacobs has done this five times before and has yet to stub his toe, enriching shareholders along the way.
When Jacobs was 23, he started an oil brokerage that he later sold and then founded an oil-trading business. He has rolled up industries in garbage collection and tool rental. The garbage business was sold to what is now Waste Management Inc., and United Rentals Inc., which Jacobs founded and exited, has a market value of $19 billion. Jacobs has said he’s made more than 500 acquisitions in his career.
At the Greenwich forum, he dropped some hints about where he’ll be searching for acquisitions: financial services, health care, biotechnology and “fallen SPACs.” A lot of the so-called blank-check companies were valued too high but have become more attractive after their shares have taken a pounding, “I’m stumbling across some that are actually really good businesses,’’ Jacobs said. They lack capital and vision, he added, hinting that he could provide both.
Judging from his record, there’s no reason to doubt that. Jacobs likes to find sectors that are overlooked, perhaps because they just aren’t terribly sexy, like picking up garbage, renting tools or operating a warehouse. He likes to add technology to those activities, giving him an edge in mundane industries peppered with small players.
The ride can be rocky at times. XPO was winning over investors as Jacobs snapped up truck brokerages and contract logistics companies and cobbled together a last-mile delivery business that used contractors, which meant he didn’t have to own the trucks and hire drivers. XPO was a fast-growing, mostly asset-light business.
The more he hunted for deals, the more he began to see the power of owning trucks. Investors balked when he bought France’s Norbert Dentressangle SA, a European trucking company. That unease turned into rebellion after Jacobs surprised the market in 2015 with the $3 billion purchase of Con-way Inc., a US trucking company that operated both long-haul and short-haul businesses. XPO was no longer asset light, and the stock sank by a third.
Jacobs stood his ground and at the time called the Con-way acquisition the most attractive one he’s ever done. Investors came around to his point of view as Jacobs proved to the market that he’s a savvy operator of companies and not just a dealmaker.
In 2018, XPO was attacked by a short seller, Spruce Point Capital Management, after the company hit a patch of cash-flow weakness and the shares plunged. Jacobs reacted by buying back $1 billion of shares financed with borrowed money. XPO regained its footing and Spruce slinked away.
Even before the pandemic hit in 2020, Jacobs was already contemplating an XPO breakup. His original idea was to offer a one-stop shop of logistics from handling customers’ inventory at the warehouse to moving it around the country. Over time, he concluded that the business was too complicated for Wall Street, and in January 2020 he hired investment bankers to explore cleaving off businesses to become more of a pure-play company that investors could easily understand. Jacobs was no longer on the hunt to buy companies. He was looking to sell.
A year later, Jacobs announced he was splitting up XPO into three companies. This made it clear that he was looking for an exit.
Critics may take issue with Jacobs plowing forward with the breakup of XPO in the teeth of a market downturn. XPO announced last week that the spinoff of the truck brokerage piece will be completed and that the new company, RXO, is selling $355 million of notes due 2027 that have an annual interest rate of 7%. Perhaps Jacobs could have ridden out this market swoon and held out for more favorable conditions.
But Jacobs isn’t the type to sit around and wait. He’s itching to get back into the hunt. Investors would be wise to keep an eye on what he snares.
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This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Thomas Black is a Bloomberg Opinion columnist covering logistics and manufacturing. Previously, he covered U.S. industrial and transportation companies and Mexico’s industry, economy and government.
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