Here We Go Again: QXO Proposes to Buy Drywall Giant Gypsum Management & Supply

By Craig Webb, President, Webb Analytics

QXO late June 18 took its second giant step toward becoming a $50 billion company by proposing to buy Gypsum Management & Supply, America's biggest publicly traded drywall specialist. The all-cash offer to pay $95.20 per GMS share values the deal at roughly $5 billion, or roughly 10 times the $500.9 million in adjusted EBITDA GMS recorded in the fiscal year ended April 30.

QXO Chairman and CEO Brad Jacobs' offer letter to GMS President and CEO John Turner comes roughly six weeks after QXO completed a hostile $11 billion takeover of Beacon, the nation's biggest publicly traded roofing dealer and No. 2 in the overall category rank behind ABC Supply. The GMS deal may be easier, as Jacobs' letter says GMS has been marketing itself for sale.

That offer letter also came the same day GMS issued its financial report for its fiscal fourth quarter and fiscal year ended April 30. For the full year, acquisitions helped GMS nudge net sales up 0.2% to $5.51 billion. But organic net sales decreased 5.8%, and net income fell 58%. For the fourth quarter alone, net income plummeted 54% to $26.1 million on a 5.6% drop in net sales to $1.33 billion. Organic net sales shrank 9.7%.

Adjusted EBITDA for the fourth quarter went down 25% to $109.8 million; for the full year, it was down 18.6% to $500.9 million.

Tough times are likely to continue. As this slide from its analyst call suggests, GMS says sales conditions are mainly down in the current fiscal quarter, which ends July 31. The Census Bureau reported June 18 that single-family starts in May were down 7.3% from a year earlier while multifamily building starts were 29.7% lower. In addition, tariffs on steel are likely to affect its sales of steel studs, which provided about 14% of GMS' fourth-quarter sales.

Jacobs' proposal follows the same pattern he used in pursuing Beacon: Asserting that GMS has underperformed and that its business outlook has deteriorated. Those arguments are based on comparisons with "peers" that it identifies as Beacon, Core & Main, Pool Corporation, SiteOne Landscape Supply, TopBuild and Watsco. None of those companies specialize in drywall. GMS' major rivals are L&W Supply, a division of privately owned ABC Supply, and Foundation Building Materials, which is owned by private equity.

QXO also bases its arguments on how GMS has failed to meet analysts' expectations. Sell-side analysts expected GMS to deliver EBITDA of $624 million for the 12-month period ending April 2025. Instead, you delivered just $501 million, and today sell-side analysts expect you to deliver [next 12 months] EBITDA of $496 million."

QXO has been speaking with GMS since at least June 2024. The most recent conversation took place on May 22.

"As we’ve said before, we don’t play games--we’re straightforward and we move fast," Jacobs' letter said. "In that spirit we have put forth a highly compelling offer at the high end of our valuation range. We have the financial capacity and deal expertise to close the Transaction swiftly and with a high level of certainty, and we’re willing to commit extensive resources to complete due diligence and negotiate definitive agreements on an accelerated timeframe. Our team and our advisors are standing by."