Interview with Paul Rak

CEO of VeriForm Inc.

About Paul Rak

Paul Rak is CEO of VeriForm Inc. VeriForm specializes in precision sheet metal and plate fabricating services, including plasma and laser cutting, induction bending, and welding for the mining, forestry, nuclear, defense and machine-building industries out of their 26,000 square-foot facility in Cambridge, Ontario, Canada. VeriForm was acquired by Arrow Machine and Fabrication Group in 2021.

Paul, let’s start by introducing Veriform.

I founded VeriForm in 1996 to do custom, precision metal manufacturing including, machining, bending, and rolling. A couple of years in, my wife Rhona joined as a temporary financial analyst, but then we ended up getting married, so she decided to stay on full-time as our CFO.

We’re a family business, but it’s not just us – over the past 25 years, we’ve built a team here at VeriForm that feels like an extension of family. We’ve had twenty-five great years together, growing the business to more than $7 million in annual revenue.

In that case, what prompted you to consider selling?

Well, we got to the point where we were just constantly feeding the machine. We have been racing to keep up with demand – which has been growing considerably in past years – which meant taking on significant, personal financial risk. This risk was magnified by the operational requirements of working in heavily customized, heavily regulated areas like defense and nuclear energy.

The stress of it all started to impact our family’s wellbeing and, more specifically, my wife’s physical health – she bore the brunt of the paperwork and processes surrounding our regulated products which are very stressful. I really wanted to continue pushing forward with VeriForm’s growth, innovation, and environmental initiatives, but at what cost to our family?

Our daughter will be heading off to college soon, and we’d like to spend more time together as a family, NOT working, before she flies the nest. So, we decided to speak to M&A advisors that had a connection with our bank.

And they introduced you to Mike at Arrow?

Yes, our advisors pulled together five recommendations for potential acquirors, and Mike Ritchie, President and CEO of Arrow Machine and Fabrication Group, really stood out among the candidates.

The M&A advisors did a really great job of preparing us for this process, not only in terms of preparing us for the due diligence phase, but also making sure that we had a clear understanding of what we wanted to get out of the deal from the start. They were fantastic to work with on the process.

You mentioned that Mike really stood out among the potential acquirors, how is that?

Mike’s technical knowledge – he was asking the right questions. He clearly understood the business and industry, as he himself has gone through the rapid growth we are now facing. We got to know Mike and his team and were impressed.

Mike has a big personality, but we were really able to connect both on the technical side of the business and also on our values as owner operators. He is a straight shooter. We were having real “meat-and-potatoes” conversations early on – no games, no posturing, no moving the goal posts. He was clear about where he was flexible to get creative in crafting a deal that worked for us both.

At the end of the day, Mike had the financials, success, and drive to take VeriForm and grow it way bigger – really take it to the next level – and I could help him take it there.

Clearly you were able to create a deal that worked for you – if you don’t mind, can you describe that deal for us?

Well, look, I really love my job. I needed to change the situation for my family, but I really wasn’t ready to let go. I talked to Mike about it, and we came up with a deal structure that allowed us to keep 20% and continue running daily operations, specifically as they related to driving growth. We would be able to take cash off the table through the sale, and also participate in the upside of the long-term growth by retaining an equity stake. That was important to me – that whichever group we partnered with maintained our operations with our teams intact – and Mike made that happen.

I also thought it was interesting that Mike’s offer didn’t include a punitive performance clause. That was unusual – financial buyers seemed to include a performance clause that hangs over your head if you stay on with the company. Instead, Mike included performances bonuses to incentivize performance, which I preferred. I have been running daily operations with our teams intact and we’re hitting our growth targets.

Plus, I was able to retain ownership of the property – a backstop against the possibility of flipping the company and moving it out of town or overleveraging it. Based on what I had seen, this kind of personalized deal was pretty unusual. It highlighted that Arrow was interested in long-term growth, not flipping or dissecting our assets. It was important to me that the teams and legacy remain, even after I exit, and Arrow was on board with that.

You’ve been able to continue strong growth through the acquisition process?

Yes, we’ve actually grown 17% just this year since the acquisition. Having an M&A consultant definitely helped ease the process while I stayed focused on operations and growth.

In fact, we’ve already doubled our team size, in part because of Arrow’s financial backing.

So, now that you’re in the post-acquisition phase, what does your new life look like?

We’re really happy with the decision. Rhona retired, but she has been on retainer to ensure a smooth transition. The first week after retirement she struggled not being in the office, but now Rhona’s really happy. We’ve definitely lowered our stress and increased our cash, so we’ve been able to enjoy that quite a bit as a family – we’ve got the flexibility of time and cash to play with before our daughter leaves for university.

For me, working with Mike has been great. I have the freedom to continue running VeriForm with our team. There hasn’t been any interference in daily operations as a result of the acquisition. That’s not to say that Mike isn’t fully aware of what’s going on – he is. We meet weekly to discuss growth strategy and what we need, for instance equipment, to make that happen. I have more financial flexibility to accelerate our growth and to go bigger. You can see the impact already – we’ve already doubled our skilled tradesmen. Plus, Arrow’s corporate office has started consolidating administrative operations like HR, safety compliance, IT and legal. For a relatively small company like ours, that’s a pretty big deal. It’s not our strength, so having someone else “deal” with the administrative functions opens up more time and mental space for me to focus on the team and operations.

The biggest thing, though, from a daily operations perspective, is that our teams have remained intact. At VeriForm, perhaps because we are relatively small and at a single location, we’re highly engaged, loyal to each other, and have been working together for decades – there is a distinct culture and efficiency to that. We have been very careful to take care of our team over the years, and as a result we’ve got an absolutely outstanding group here at VeriForm. Thankfully, that has remained the same – we are still very much “us” – which is so crucial to our success.

Overall, how has the acquisition compared to your expectations?

It has definitely exceeded expectations. Mike respects the technical – he understands that our teams’ knowledge and experience are directly tied to our clients, many of whom are in highly regulated areas. Disrupting our teams would disrupt our client relationships. Arrow ensured that our staffing and system of operations weren’t disrupted through the acquisition – that was important because we’re like family.

From a high-level perspective, Mike has given us the freedom to continue running the business as we have – focusing on innovation, best-in-class precision metalworking, and close client relationships. Plus, we now have the benefits of Arrow’s financial backing for growth and its combined scale for improved purchasing power. Being able to already see these benefits is re-energizing. And Mike has the vision and stamina to take VeriForm to places that we simply wouldn’t have been able to on our own.

Being part of Arrow, and the greater potential it brings to the table, has made my job less stressful and just more fun. I’m excited to see how we can grow VeriForm this year – both for our team and our clients.

This is very exciting – we’re looking forward to watching VeriForm really evolve in the coming years. Glad to have VeriForm on the Arrow team. Thanks, Paul!

Interested in Becoming an Arrow Partner?

Ideal partners are metal machining and fabrication companies generating $5 million or more in annual revenue with a clear path to future growth. We welcome conversations with owner operators looking to:

Our transactions are straightforward and efficient, usually lasting 3-6 months with limited disruptions to operations.

About

Arrow Machine and Fabrication Group

Arrow Machine and Fabrication Group is a Tier 1 supplier in metal machining and fabrication services, catering to Off-Road, Engineered Products, and Automotive sectors globally. Our clients include Toyota Industrial, John Deere, Komatsu, General Dynamic Land Systems, Tigercat, Volvo Construction, Bruce Power, Tenneco, Nexteer, Conti-Tech, Magna and Mack Defense.

With over 1,000 skilled craftsmen and engineers at 12 locations, we work closely with our OEM customers on innovative solutions to complex manufacturing challenges – from concept design through to value-added, tight tolerance components, assemblies, and engineered products.

We are continually expanding our network of capabilities and suppliers — either organically or through strategic acquisitions — to better service our customers’ needs.