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The characteristics I always look for in an industry are the size first of all, because if you want to create a lot of value, you've got to have a big T. Don Valentine at Sequoia used to talk about that all the time. You need a big addressable market. Otherwise, it's hard to solve a big problem and create a lot of value. I look for inherent growth in the business even before I get in. So, it's got to be an industry that's got tailwinds, not headwinds. It's got to be something that just by showing up every Monday morning, there's more demand than there was secularly over time. I look for things where there's stuff to buy because I'm an M&A and operations guy. So I look for companies, industries where there's companies to buy at reasonable prices and where the playbook that we've used over and over again works where it's applicable and it can improve the profitability of the business. Those are the main things I look for in an industry.
So that brings us to QXO. Let's use that as an example. What's the building products distribution...
Very sexy. I mean shareholder returns are sexy, right?
They are. Attractive people get people like that stuff. So, but why that one and what's the opportunity?
So, I had on my desktop I had a list of all the things I was looking for in an industry. Mainly the things I just mentioned and four or five other things too. And I looked at about 600 companies over about 55 different industries. And this is the first one that literally checked every box. So, that was the girl I wanted to marry. I was done. This is it. This is the one I want to do. So I like the characteristics of the industry. I think it's a safe bet that building products is not going into the metaverse five years from now, 10 years from now. You're still going to go home to a real physical house with a roof and windows and doors and bathtub. I don't think that's going away. And I think over time, because of the shortage of housing and the age of all the commercial and residential buildings, I think there's going to be a lot of repair and remodeling. I think there's going to be a lot of new construction over time. There'll be cycles, but over time, I think it's up into the right.
So, I like that. I like the fact that it's fragmented. There's like 20,000 distributors.
Because you can buy them all.
Buy some of them. I don't have to buy a lot of them. Actually, I don't have to buy a lot of them. I have to buy one or two a year of large size. We can do these smaller tuck-ins, too.
You did this big 11 billion deal that closed this year.
We did. Beacon was an 11 billion dollars deal. And that was a great deal. I liked it a lot. That was like the perfect deal for us. There's others, too. The goal is to get to 50 billion in revenue. That's the next mountaintop we're going to climb. We'll climb another mountaintop after that. But the first mountaintop is $50 billion. So, in order to do that, I got to buy 30, 40 billion and organically grow it through price, through volume, through market share up to the 50 billion. So with the nine or 10 billion we already bought, we're a quarter to a third there already. So we don't have to do a zillion deals. We have to do good deals. We have to do deals that are reasonably priced. Not really low price because you're not going to buy anything if you get too stingy on that, but definitely not overpriced. It's the number one mistake that acquirers make is they fall in love with a deal and they pay some ridiculous price.
How do you make sure you don't do that?
What's numbers? It's very, very straightforward. You look at trailing numbers. You can hypnotize yourself if you look at forward numbers that are big hockey sticks saying, 'Oh wow, we're in a trough now and next year it's all going to come back.' And then you can convince yourself that, yeah, I'm really buying this thing really cheaply off this hockey stick stuff, but maybe you are. Maybe you're not. Maybe it gets worse. So you look at trailing numbers and then you look at what multiple you're paying for that and then you make sure that is a significant discount to your cost of capital where you're raising capital at, and that spread between where you can raise capital at and where you're deploying capital at, even before you improve the businesses that you buy, you're ahead of the game.
And then how do you approach the negotiation to buy?
With respect. And I try to avoid all the games that you see in the M&A world. It's like so many games.
Like making the other guy wait, right?
This is like everybody does that.
Well, I was never good at dating.
You have a wonderful wife.
I do. I ended up in a good place, but it wasn't due to my dating skills. So, it's kind of like a passive-aggressive thing where you're trying to buy a company.
Hard to get. Play hard to get.
You're playing hard to get and people find other things to do if you play hard to get. So, I call the guy back like five minutes afterwards. So yeah, sure, maybe think, oh, his tongue is hanging out. He's really hungry for this deal. I am hungry for the deal on certain terms. So I don't like posturing. I don't like playing games. I don't like baloney. I just be very straightforward and talk about what we need on the deal and try to figure out, listen very carefully. What do you need on the deal? And is, do these things overlap? Is there a way that we can win this so that we come out ahead with the things that are important, the most important things that are important to us? You're not going to get everything. Doesn't work like that, but the most important things, and you get what you need, too.
What have been some of the toughest negotiations you've been involved in? What are some that stand out?
Well, we've managed — when you say I get credit for this stuff, it's really the team and my teams. So the teams and I have bought over 500 acquisitions and I would call those the ones that were not problematic because we got to the finish line. Some of them were in fits and starts and delays but eventually we got there so it was good. We looked at thousands, I mean literally thousands that either we didn't want to do because we found some didn't fit us. We weren't able to create the kind of value that we're looking for or we messed up. We messed up and someone else stole it right from under us at a price that we would have done. It's, you know, that's a bad couple hours after you get that news if someone else got exactly what you wanted at maybe even a lower price you were willing to pay.
Then what do you do? Do you fire your banker?
No, we all make mistakes. I don't expect perfection. I don't expect perfection in my team. I don't expect perfection in myself. I don't expect perfection in the world. In fact, the opposite. I expect imperfection everywhere. I expect all of us to mess up including myself and to forgive that and to move on and give yourself permission to be human as the positive psychologist says. I think that's an important life lesson.
I know, that's what I love about you. I always get life lessons and sort of mindful advice as well, deep in an M&A conversation.
It's fun. Yes, it's in the book. Read the book.
Meditation, right? Your big...
Meditation is the first chapter and then therapy is the second chapter. Like getting your head in a good place and getting it back into a good place once you inevitably get kicked out of it because you do. And then the middle part of the book, so I start with getting your head in a good place. The middle part of the book is integration. Like exactly what is the playbook because in the first book I talked a lot about M&A. I talked about like acquiring a company and how you think about that and all the psychology of it and the practicality of it and I got a lot of questions of okay, I get that. So like what do you do after you buy it and how do you finance it? So I kept track of all the questions people asked because I have a lot of friends on LinkedIn. I've never met them but I consider them friends.
And I get all these questions and they started getting repetitive after a while and I said okay look, there's about 15 or so that are like everyone keeps asking the same questions. So you know what, I'm just going to write a book. Someone asks me the question, I'm going to say go to page 400. Go to page 200.
But Barbara said it's a lot of your secret sauce. Why did you decide to share while you're still in the game?
I mean, people say that all the time. They said, 'You ought to play your cards closer to your vest.' You know, why are you telling people...
