After a comprehensive year-long search, Brad Jacobs announced his intention to create a market leader in building products distribution — an industry with approximately $800 billion in annual revenue between North America and Europe, according to industry estimates. The company will be called QXO, Inc.
As a first step, on December 3, 2023, Jacobs Private Equity ("JPE"), which is led by Brad Jacobs, and minority co-investors entered into an investment agreement with SilverSun Technologies, Inc. (Nasdaq: SSNT) (“SilverSun”), pursuant to which they will invest $1 billion in cash into SilverSun. The proposed investment is comprised of $900 million by JPE and $100 million by co-investors, including Sequoia Heritage.
Upon the closing of the equity investment, SilverSun will be renamed QXO. JPE will become QXO’s majority stockholder, and Jacobs will become the company’s chairman and chief executive officer. QXO will become a standalone platform for Jacobs’ new venture following the spin off of the existing business to SilverSun stockholders as of a record date that is expected to be one day prior to the closing of the investment.
QXO plans to create a tech-forward industry leader in the building products distribution industry through accretive M&A and organic growth, including greenfield openings, with the goal of generating outsized stockholder value.
Distributors of building products offer materials, finished goods, value-added solutions and expertise to a broad range of customers across residential, nonresidential, industrial and infrastructure end-markets. Their products are used extensively in new construction and in repair and remodeling. Key categories include access control, construction supplies, doors and windows, electrical components, fencing and decking, HVAC, infrastructure, landscaping, lumber, plumbing, pools, roofing, siding and water, among others.
QXO expects to achieve a revenue run-rate of at least $1 billion by the end of year one, at least $5 billion within three years, and tens of billions of dollars over the next decade. QXO’s scale should elevate the customer experience, increase sales force effectiveness and enable margin expansion.
The industry’s nascent use of technology, particularly AI and B2B e-commerce, represents a compelling opportunity for tech-focused entrants. According to industry data, the percentage of industry revenue derived from e-commerce is currently only mid-single digits, and this share is expected to triple by 2030. Additional types of tech adoption by distributors have the potential to be transformative through price optimization, demand forecasting, warehouse automation and robotics, automated inventory management, route optimization for delivery fleets, supply chain visibility, and end-to-end digital customer connectivity. QXO’s strategy anticipates that these drivers, among others, will be central to the company’s goal of outsized stockholder value creation.
The market opportunity
The building products distribution industry is highly fragmented, with approximately 7,000 distributors in North America and 13,000 in Europe, according to industry observers. The industry has generated compound annual revenue growth of 7% over the last five years, based on industry data, and continues to benefit from powerful secular growth drivers for building products distribution in the residential, nonresidential and infrastructure sectors.
For example, industry reports estimate that the current supply of U.S. homes is 3 million units short of demand, potentially creating long-term tailwinds for both new construction and the repair and remodeling of aging homes. In the nonresidential sector, long-term demand is expected to be driven by growth across multiple industrial and commercial verticals, according to industry sources. Infrastructure should benefit from the widely reported need for repair or replacement of America's public transportation, utility and communication systems, among others.
These market dynamics, together with the fragmented nature of the industry, offer a significant opportunity to unlock growth potential through scale and technology. National distributors can serve large customers across multiple geographies and project types with standardized efficiencies, providing consistent, data-driven customer services across a broad operating scope. Additionally, a scaled technology ecosystem can expand the array of value-added services offered to customers, such as jobsite visibility into product consumption, digital configuration tools for custom ordering and tracking, and virtual design capabilities that interface with product order flow.
Brad Jacobs has completed approximately 500 M&A transactions in his career, and built five multibillion-dollar, publicly traded companies to date: XPO, Inc. (NYSE: XPO), one of the largest providers of less-than-truckload services in North America; GXO Logistics, Inc. (NYSE: GXO), the largest pure-play contract logistics provider in the world; RXO, Inc. (NYSE: RXO), a leading tech-enabled freight brokerage platform; United Rentals, Inc. (NYSE: URI), the world’s largest equipment rental company; and United Waste Systems, Inc., the fifth largest U.S. waste management company at the time of its sale.
Each of these companies has a history of attracting world-class talent, establishing advantages through technology, and scaling up through accretive capital allocations for M&A and organic growth.
This decades-long track record should position QXO to acquire exceptional businesses, integrate them effectively, improve margins and generate high returns on capital.
The Investment Agreement
Under the terms of the Investment Agreement, the Company will, shortly after the closing of the investment, separate (“spin off”) the existing SilverSun business as SilverSun Technologies Holdings, Inc. (the “spin-off company”) and distribute all shares of the spin-off company to the stockholders of SilverSun as of a record date that is expected to be one day prior to the closing of the equity investment. The Company will also effect an 8:1 reverse stock split prior to the closing of the equity investment. Upon the closing of the investment and the effectiveness of the reverse stock split, JPE, Sequoia Heritage and the other co-investors will have: (i) voting, convertible preferred stock that, in aggregate, is convertible into approximately 219 million shares of the Company’s common stock at a price of $4.57 per share (equivalent to $0.57 per share pre-split); and (ii) warrants to purchase an additional approximately 219 million shares of the Company’s common stock at post-reverse-split exercise prices of: $4.57 per share (equivalent to $0.57 per share pre-split) with respect to 50% of the warrants, $6.85 per share (equivalent to $0.86 per share pre-split) with respect to 25% of the warrants, and $13.70 per share (equivalent to $1.71 per share pre-split) with respect to the remaining 25% of the warrants. Following the closing of the investment, JPE and the co-investors will own approximately 99.85% of the Company’s common stock on a fully convertible/exchangeable basis.
In addition, SilverSun will declare a $2.5 million aggregate cash dividend to its stockholders as of the same record date, to be funded from proceeds received under the Investment Agreement. The transactions contemplated by the Investment Agreement have been approved by SilverSun’s board of directors, and are expected to be completed in 2024. The transactions are subject to SilverSun stockholder approval and the satisfaction of other customary closing conditions.
The Company’s current management and board of directors, including Mark Meller, SilverSun’s chief executive officer, are expected to continue in their current roles at the spin-off company and its subsidiaries. The spin-off company will apply for a public listing of its shares, which will be registered pursuant to a Form 10 registration statement that will be filed with the U.S. Securities and Exchange Commission.
Cautionary statement regarding forward-looking statements
This website’s content contains forward-looking statements. Statements that are not historical facts, including statements about beliefs or expectations, are forward-looking statements. These statements are based on plans, estimates, expectations and projections at the time the statements are made, and readers should not place undue reliance on them. In some cases, readers can identify forward-looking statements by the use of forward-looking terms such as “may,” “will,” “should,” “expect,” “opportunity,” “intend,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” “target,” “goal,” or “continue,” or the negative of these terms or other comparable terms. Forward-looking statements involve inherent risks and uncertainties and readers are cautioned that a number of important factors could cause actual results to differ materially from those contained in any such forward-looking statements. Factors that could cause actual results to differ materially from those described herein include, among others:
- uncertainties as to the completion of the equity investment, the separation by SilverSun Technologies, Inc. (the “Company”) of its existing business into SilverSun Technologies Holdings, Inc. (the “spin-off”) and the other transactions contemplated by the investment agreement by and among Jacobs Private Equity II, LLC, the Company and the other parties thereto (the “Investment Agreement”), including the risk that one or more of the transactions may involve unexpected costs, liabilities or delays;
- the risks associated with the Company’s relatively low public float, which may result in its common stock experiencing significant price volatility;
- the possibility that competing transaction proposals may be made;
- the risks associated with raising additional equity or debt capital from public or private markets to pursue acquisitions or other strategic investments, including in an amount that may significantly exceed the initial equity investment, and the effects that raising such capital may have on the Company’s business and the trading price of the Company’s common stock, including the possibility of substantial dilution;
- the possibility that additional future financings may not be available to the Company on acceptable terms or at all;
- the effects that the announcement, pendency or consummation of the equity investment, the spin-off and the other transactions contemplated by the Investment Agreement may have on the Company and its current or future business and on the price of the Company’s common stock;
- the possibility that an active, liquid trading market for the Company’s common stock may not develop or, if developed, may not be sustained;
- the possibility that the warrants, if issued, may not be exercised;
- the possibility that various closing conditions for the equity investment, the spin-off and the other transactions contemplated by the Investment Agreement may not be satisfied or waived, or any other required consents or approvals may not be obtained within the expected timeframe, on the expected terms, or at all, including the possibility that the Company may fail to obtain stockholder approval for the transactions contemplated by the Investment Agreement;
- the effects that a termination of the Investment Agreement may have on the Company, including the risk that the price of the Company’s common stock may decline significantly if the equity investment is not completed;
- the risk that the spin-off may be more difficult, time-consuming or costly than expected or the possibility that the anticipated benefits of the spin-off may not be realized;
- uncertainties regarding the Company’s focus, strategic plans and other management actions;
- the risk that the Company, following the closing of the equity investment, is or becomes highly dependent on the continued leadership of Jacobs as chairman and chief executive officer and the possibility that the loss of Jacobs in these roles could have a material adverse effect on the Company’s business, financial condition and results of operations;
- the risk that Jacobs’ past performance may not be representative of future results;
- the risk that the Company is unable to attract or retain world-class talent;
- the risk that the Company may be unable to identify suitable acquisition candidates or expeditiously consummate any particular acquisition candidate on acceptable terms or at all;
- the risk that the failure to consummate an acquisition expeditiously, or at all, could have a material adverse effect on the Company’s business prospects, financial condition, results of operations or the price of the Company’s common stock;
- the risk that the Company may fail to satisfy the ongoing requirements of Nasdaq if it is unable to expeditiously consummate an acquisition following the consummation of the spin-off;
- the risks associated with cybersecurity and technology, including attempts by third parties to defeat the security measures of the Company and its business partners, and the loss of confidential information and other business disruptions;
- the possibility that new investors in any future financing transactions could gain rights, preferences and privileges senior to those of the Company’s existing stockholders;
- the risks associated with the uncertain nature of the building products distribution industry in which Jacobs, upon becoming chairman and chief executive officer of the Company, plans to pursue acquisitions after consummation of the transactions contemplated by the Investment Agreement;
- the possibility that industry demand may soften or shift substantially due to the cyclicality and seasonality of the building products distribution industry and its dependence on general economic conditions, including inflation or deflation, interest rates, consumer confidence, labor and supply shortages, weather and commodity prices;
- the possibility that regional or global barriers to trade or a global trade war could increase the cost of products in the building products distribution industry, which could adversely impact the competitiveness of such products and the financial results of businesses in the industry;
- the risks associated with potential litigation related to the transactions contemplated by the Investment Agreement or related to any possible subsequent financing transactions or acquisitions or investments;
- uncertainties regarding general economic, business, competitive, legal, regulatory, tax and geopolitical conditions; and
- other factors, including those set forth in the Company’s filings with the U.S. Securities and Exchange Commission, including its Annual Report on Form 10-K for the fiscal year ended December 31, 2022 and subsequent Quarterly Reports on Form 10-Q.
Forward-looking statements herein speak only as of the date each statement is made. Neither the Company nor any person undertakes any obligation to update any of these statements in light of new information or future events, except to the extent required by applicable law.
Additional information and where to find it
In connection with the proposed equity investment, the Company will prepare a proxy statement to be filed with the U.S. Securities and Exchange Commission (the “SEC”). When completed, a definitive proxy statement and a form of proxy will be mailed to the stockholders of the Company. THE COMPANY’S STOCKHOLDERS ARE URGED TO READ THE PROXY STATEMENT REGARDING THE PROPOSED TRANSACTIONS BECAUSE IT WILL CONTAIN IMPORTANT INFORMATION. The Company’s stockholders will be able to obtain, without charge, a copy of the proxy statement (when available) and other relevant documents filed with the SEC from the SEC’s website at http://www.sec.gov. The Company’s stockholders will also be able to obtain, without charge, a copy of the proxy statement and other relevant documents (when available) from the Company’s website at https://www.silversuntech.com or by written request to the Company at 120 Eagle Rock Avenue, East Hanover, New Jersey 07936.
Participants in the solicitation
Jacobs Private Equity II, LLC and the Company and its directors and officers may be deemed to be participants in the solicitation of proxies from the Company’s stockholders with respect to the proposed equity investment and the other transactions contemplated by the Investment Agreement. Information about the Company’s directors and executive officers and their ownership of the Company’s common stock is set forth in the proxy statement for the Company’s 2023 Annual Meeting of Stockholders, which was filed with the SEC on November 27, 2023. The interests of the Company and its directors and executive officers with regard to the proposed equity investment may differ from the interests of the Company’s stockholders generally, and stockholders may obtain additional information by reading the proxy statement and other relevant documents regarding the proposed equity investment and the other transactions contemplated by the Investment Agreement, when filed with the SEC.