SIGNIFICANT ACQUISITIONS

9 Months Ended

Sep. 30, 2022

Business Combination and Asset Acquisition [Abstract]

Cardinal Associates Inc. ("Bergstrom")

On August 30, 2022, the Company's wholly-owned subsidiary Albion Laboratories, Inc. ("Albion") entered into a Stock Purchase Agreement, and closed on such transaction with Cardinal Associates Inc. ("Cardinal"), a corporation organized under the laws of the State of Washington, pursuant to which Albion acquired Cardinal and its Bergstrom Nutrition business (collectively, "Bergstrom"). Bergstrom Nutrition is a leading science-based manufacturer of methylsulfonylmethane (MSM), based in Vancouver, Washington. MSM is a widely used nutritional ingredient with strong scientific evidence supporting its benefits for joint health, sports nutrition, skin and beauty, healthy aging, and pet health. Bergstrom Nutrition's MSM brand "OptiMSM®" delivers the highest quality and purity MSM on the market and is the only brand of MSM with a U.S. GRAS "generally regarded as safe" designation. The addition of OptiMSM® to the Company's portfolio within Human Nutrition & Health and Animal Nutrition & Health segments provides a synergistic scientific advantage in Balchem's key strategic therapeutic focus areas such as longevity and performance and is a strong fit with Balchem's specialty, science-backed mineral products.

The Company made payments of $70,892 for the acquisition, amounting to $69,740 to the former shareholders and $1,152 to pay off Bergstrom's bank debt and certain other obligations. Net of cash acquired of $773, total payments made to the former shareholders of Bergstrom on the acquisition date were $68,967. The acquisition was primarily financed through the 2022 Credit Agreement (see Note 8, "Revolving Loan"). In connection with this transaction, the former shareholders of Bergstrom have an opportunity to receive an additional payment if certain financial performance targets and other metrics are met, and therefore we recorded a contingent consideration liability of $7,835 as of September 30, 2022. The goodwill of $34,060 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 both the Human Nutrition & Health and Animal Nutrition & Health business segments. For tax purposes, a joint election under 338(h)(10) was made to treat the stock acquisition as a deemed asset acquisition, therefore generating tax amortizable goodwill.

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


Cash and cash equivalents	$	773
Accounts receivable	4,699
Inventories	3,922
Property, plant and equipment	2,700
Right of use assets	866
Customer relationships	26,500
Developed technology	4,700
Trademarks	2,300
Other assets	197
Accounts payable	(685)
Bank debt	(206)
Lease liabilities	(871)
Other liabilities	(1,380)
Goodwill	34,060
Total consideration on acquisition date	77,575
Contingent consideration liability	(7,835)
Amount paid to shareholders	69,740
To pay off bank debt and certain other obligations	1,152
Total amount paid	$	70,892

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.

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 Bergstrom acquisition are included in general and administrative expenses and were $593 and $668 for the three and nine months ended September 30, 2022, respectively.

Kechu BidCo AS and Its Subsidiary Companies ("Kappa")

On June 21, 2022, Balchem Corporation 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 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 in the second quarter of 2022 (translated to $22,712 as of September 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 $217,570 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. The transactions were completed in Norwegian kroner ("NOK") and the amounts were translated to U.S. dollars ("USD") using the foreign currency exchange rate as of June 21, 2022.


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	110,012
Developed technology	17,662
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	(30,069)
Goodwill	217,570
Total consideration on acquisition date	327,263
Contingent consideration liability	(24,726)
Net gain on foreign currency exchange forward contracts	(512)
Amount paid to shareholders	302,025
Kappa bank debt paid on acquisition date	30,648
Total amount paid on acquisition date	$	332,673

Transaction and integration costs related to the Kappa acquisition are included in general and administrative expenses and were $989 and $1,440 for both the three and nine months ended September 30, 2022. There were no such amounts related to this acquisition for the three and nine months ended September 30, 2021.