SIGNIFICANT ACQUISITIONS

6 Months Ended

Jun. 30, 2022

Business Combination and Asset Acquisition [Abstract]

On June 21, 2022, Balchem and its wholly-owned subsidiary, Balchem B.V., completed the acquisition of Kechu BidCo AS and its subsidiary companies, including Kappa Bioscience AS, a leading science-based manufacturer of specialty vitamin K2 for the human nutrition industry, headquartered in Oslo, Norway (all acquired companies being hereinafter collectively referred to as “Kappa”). The Company made payments of approximately kr3,301,341 ("kr" indicates the Norwegian krone) on the acquisition date, amounting to approximately kr2,997,669 to the former shareholder and approximately kr303,672 to Kappa's lenders to pay off all Kappa bank debt. Net of cash acquired of kr63,064, total payments on the acquisition date were kr3,238,277. Considering net cash acquired of $6,365, these payments translated to approximately $326,820 paid on the acquisition date, amounting to $302,537 paid to the former shareholder and approximately $30,648 to Kappa's lenders. The acquisition was primarily financed through the 2018 Credit Agreement (see Note 8, "Revolving Loan"). In connection with this transaction, the seller has an opportunity to receive an additional payment in 2024 if certain financial performance targets and other metrics are met, and therefore we recorded contingent consideration of kr245,000 (translated to $24,793) as of June 30, 2022. Kappa manufactures specialty vitamin K2, a fast-growing specialty vitamin that plays a crucial role in the human body for bone health, heart health, immunity, and athletic performance. Primarily, vitamin K2 supports the transport and distribution of calcium in the body. Vitamin K2 is important at all life stages, from pregnancy and early life to healthy aging. Kappa's K2VITAL® branded vitamin K2 is the leading synthetic vitamin K2 and is backed by strong intellectual property and a deep clinical research portfolio. The acquisition strengthens the Company's scientific and technical expertise, geographic reach, and marketplace leadership, which should ultimately lead to accelerated growth for the Company's portfolios within the Human Nutrition & Health segment.

The goodwill of $212,591 that arose on the acquisition date consists largely of expected synergies, including the combined entities' experience and technical problem-solving capabilities, and acquired workforce. The goodwill is assigned to the Human Nutrition & Health business segment and is not deductible for income tax purposes.

The following table summarizes the estimated fair values of the assets acquired and liabilities assumed:


Cash and cash equivalents	$	6,365
Accounts receivable	8,036
Inventories	17,701
Property, plant and equipment	9,854
Right of use assets	3,349
Customer relationships	113,545
Developed technology	18,166
Trademarks	6,055
Other assets	2,399
Accounts payable	(3,301)
Bank debt	(30,648)
Lease liabilities	(3,349)
Other liabilities	(4,373)
Deferred income taxes, net	(29,127)
Goodwill	212,591
Total consideration on acquisition date	327,263
Contingent consideration liability	(24,726)
Net gains on foreign currency exchange forward contracts	(512)
Amount paid to shareholders	302,025
Kappa bank debt paid on purchase date	30,648
Total amount paid on acquisition date	$	332,673

The estimated fair value of tangible and intangible assets acquired and liabilities assumed is based on management’s estimates and assumptions, which are subject to change. In preparing our preliminary fair value estimates of the intangible assets and certain tangible assets acquired, management, among other things, consulted an independent advisor. Valuation methods utilized include net realizable value for inventory, multi-period excess earnings method for customer relationships, the relief from royalty method for other intangible assets, and a scenario-based approach for the contingent consideration. The purchase price and related allocation of assets acquired and liabilities assumed is preliminary pending management's final review of fair value calculations and deferred tax liabilities related to certain non-deductible assets.

Customer relationships are amortized over a 15-year period utilizing a percentage of excess earnings over economic life method. The corporate trademark and product trademarks are amortized over 2 years and 10 years, respectively, and developed technology is amortized over 12 years, utilizing the straight-line method as the consumption pattern of the related economic benefits cannot be reliably determined.

Transaction and integration costs related to the Kappa acquisition are included in selling, general, and administrative expenses and were $451 for both the three and six months ended June 30, 2022. There were no such amounts related to this acquisition for the three and six months ended June 30, 2021.

The following preliminary unaudited pro forma information has been prepared as if the acquisition had occurred on January 1, 2021.


	Three Months Ended June 30,				Six Months Ended June 30,

	Net Sales		Net Earnings		Net Sales		Net Earnings

Kappa actual results included in the Company's consolidated income statement from June 21, 2022 through June 30, 2022	$	—	$	—	$	—	$	—

2022 Supplemental pro forma combined financial information	$	247,430	$	30,172	$	489,170	$	58,648

2021 Supplemental pro forma combined financial information	$	213,032	$	26,344	$	410,649	$	50,379

Kappa's net sales and net earnings from June 21, 2022 through June 30, 2022 were not material. As such, they were not included in the Company's condensed consolidated statements of earnings for the three and six months ended June 30, 2022. 2022 supplemental pro forma net earnings for the three and six months ended June 30, 2022, excluded $643 and $722, respectively, of acquisition-related costs incurred. The pro forma information presented does not purport to be indicative of the results that actually would have been attained if the Kappa acquisition had occurred at the beginning of the periods presented, and is not intended to be a projection of future results.