Amid the news cycle amongst industrial, commercial and building supply wholesale distribution, there is arguably no item more compelling than what’s going on between Beacon and QXO, which is awaiting its next development.
A research note from an analyst of a reputable brokerage and investment bank firm suggests the saga is just heating up. More on that below.
As a quick primer, news first surfaced in mid-November that QXO — the building materials distribution and technology platform started in late 2023 by Brad Jacobs — had made an offer to buy roofing, siding and other building materials distributor Beacon.
QXO confirmed the offer on Jan. 15 in a bold manner, publishing an open letter from Jacobs to Beacon’s board chairman detailing allegations that Beacon has taken actions to “frustrate a transaction” for QXO’s offer of $124.25 per share that represents a deal value of about $11 billion and a 37% premium to Beacon’s 90-day average share price as of that letter date.
Beacon responded later that day, confirming receipt of the offer and stating its outright rejection to it, noting the unanimous rejection to the deal by Beacon’s board of directors and that the offer “significantly undervalues the company and its prospects for growth and future value creation.”
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So, What’s Next?
QXO’s letter said, quite clearly, that it is prepared for a proxy fight to acquire Beacon by taking the offer directly to Beacon’s shareholders.
In the meantime, QXO may not be alone in pursuing the company for acquisition, despite QXO noting on Jan. 15 that it wasn’t aware of any other interested buyers.
Andrew Carter, an analyst at investment bank Stifel, thinks Beacon will likely receive other offers unless QXO increases its bid.
“We believe QXO will have to increase its offer to be successful via a proxy context, and we believe there is real potential for a competing strategic offer with our target price assuming a $135 per share takeout price.” Stifel’s W. Andrew Carter wrote in a note.
Further, Carter said that home improvement retailer Lowe’s (LOW) is the candidate best suited to make a pitch for Beacon (BECN).
“We believe LOW is the most compelling candidate, in our view, with LOW sporting ample financial resources and BECN enabling capturing targeted roofing category growth,” he said. “We believe BECN is a prime asset for enabling LOW ambitions, with BECN sporting a revenue growth profile largely accretive to LOW ambitions.”
Not so Fast
But let’s not jump the gun here. As with all market predictions when it comes to potential M&A transactions, it depends on who you ask. In its own equity research note on Jan. 15, the Industrials team for capital markets firm Truist Securities said there doesn’t appear to be any other bidders so far for Beacon besides QXO:
“We initially expected to potentially see more bidders emerge for BECN following the (Wall Street Journal) reports, but thus far, no new bidders have publicly surfaced with competing offers,” the note said. “In our view, many in the roofing industry had thought that Lowe’s (LOW, Buy, Ciccarelli) could have been a potential bidder, but we think this is unlikely based on indications from their recent investor day presentation.”
Lowe’s is The Home Depot’s top competitor, but unlike HD — which has made numerous investments into the industrial distribution space over the past decade, including its landmark $18 billion purchase of SRS Distribution this past June — Lowe’s hasn’t yet made a pronounced play into B2B distribution. Ever since that deal was announced last year, MDM has wondered if Lowe’s would pursue a deal of its own in the pro contractor space.
In his note, Carter said he was surprised at Lowe’s Investor Day commentary on Dec. 11 in which the company’s leaders talked about increasing the company’s market share of Pro spend, including specifically from the roofing vertical.
“There would be limited synergy potential with LOW likely to maintain the entirety of the BECN management team similar to HD SRS,” Carter detailed. “But LOW sports ample financial resources with our analysis suggesting net leverage would grow to 3.6x Net Debt to EBITDAR assuming the $135 takeout price with LOW likely able to achieve targeted 2.75x Net Debt to EBITDAR within two years.”
With that, Carter increased his price target for Beacon from $115 per share to $135.
QXO began trading on the New York Stock Exchange on the morning of Jan. 17.
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Jim Cramer’s Take
Beacon’s executives aren’t the only ones saying QXO is undervaluing the company. Jim Cramer — best known as the host of CNBC’s “Mad Money” — gave his take on the matter in an appearance on the network’s “Squawk on the Street” on Jan. 17:
“Beacon Roofing is a really, really good company. And it’s been through thick and thin. Housing crisis, housing shortage, too many homes — they’ve always been the winner. Brad Jacobs, a very very smart guy. He built a great trucking company and then pretty much broke it off, created a lot of value. But what does this say about Lowe’s Corp.? What does this say about Home Depot? What does it say about the companies like Floor & Decor, Builders FirstSource. These companies may be undervalued, they’re selling at very low multiples. Beacon Roofing is something you don’t buy when you’re going into a depression for heaven’s sake or a slowdown. You’re buying because you think the economy’s going to accelerate. Very telling.”
As far as Cramer’s take on QXO pursuing Beacon?
“It’s going to be a real battle,” he said as Jacobs was ringing the NYSE opening bell.
Other Notes
Before Beacon, QXO’s first acquisition target was Rexel, a France-based electrical supplies distributor that gets about 45% of its total revenue from its North American operations. In mid-September, Rexel acknowledged that QXO offered to buy the company in a deal valued at $9.4 billion. Rexel’s board unanimously turned down the offer, saying that QXO “significantly undervalues the company and does not reflect its value creation potential.”
Beacon’s stock is up more than 15% year-to-date in 2025, with the vast majority of that increase occurring on the morning of QXO’s open letter. At the end of trading on Jan. 17, the stock was trading at $115.92.
Other Dates to Keep in Mind
Beacon will likely report its fourth quarter and full-year 2024 financial results in late February or early March. A year earlier, it issued that 4Q report on Feb. 27.
Beacon is set to host its 2025 Investor Day on March 13 in New York City from 8:30 a.m. to 4:30 p.m. ET. If the standoff with QXO is still ongoing and another offer for Beacon isn’t publicly known by then, the event will be of high interest to hear from Beacon CEO Julian Francis, CFO Prithvi Gandhi and other executives for their prepared remarks on Beacon’s strategy, growth drivers and financial objectives and their responses to multiple Q&A sessions throughout those four hours.