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SIGNIFICANT ACQUISITIONS | 6 Months Ended
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Jun. 30, 2023
Business Combination and Asset Acquisition [Abstract] |
SIGNIFICANT ACQUISITIONS | SIGNIFICANT ACQUISITIONS 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 100% of the voting equity interests of Cardinal and its Bergstrom Nutrition business (collectively, "Bergstrom"). Bergstrom Nutrition is a leading science-based manufacturer of 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. The addition of OptiMSM®, Bergstrom Nutrition's MSM brand, to the Company's portfolio within the Human Nutrition and Health and Animal Nutrition and 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 $71,233 for the acquisition, amounting to $71,027 to the former shareholders or on behalf of the former shareholders and $206 to pay off Bergstrom's bank debt. Net of cash acquired of $773, total payments made to the former shareholders or on behalf of the former shareholders of Bergstrom were $70,254. 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 in the second quarter of 2024 if certain financial performance targets and other metrics are met, and therefore, the Company recorded a contingent consideration liability, which was valued at $5,000 as of June 30, 2023. As a result, total payments related to the transaction are expected to be $76,233, comprised of the upfront cash consideration of $70,892, a working capital adjustment of $341, and the fair value of the earn-out payment of $5,000. The goodwill of $31,550 that arose on the acquisition date consists largely of expected synergies, including the combined entities' experience and technical problem-solving capabilities, and acquired workforce. 80% of the goodwill is assigned to the Human Nutrition and Health business segment and 20% of the goodwill is assigned to the Animal Nutrition and Health business segment. 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 fair values of the assets acquired and liabilities assumed:
Cash and cash equivalents |  | $ | 773 |
Accounts receivable |  | 4,699 |
Inventories |  | 3,972 |
Property, plant and equipment |  | 2,243 |
Right of use assets |  | 866 |
Customer relationships |  | 29,900 |
Developed technology |  | 4,600 |
Trademarks |  | 2,300 |
Other assets |  | 197 |
Accounts payable |  | (699) |
Bank debt |  | (206) |
Lease liabilities |  | (871) |
Other liabilities |  | (462) |
Goodwill |  | 31,550 |
Total consideration on acquisition date and working capital adjustment |  | 78,862 |
Net decrease to contingent consideration liability |  | (2,835) |
Total expected consideration |  | 76,027 |
To pay off bank debt |  | 206 |
Total expected payments |  | $ | 76,233 |
The 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. 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 $(7,769) and $(5,880) for the three and six months ended June 30, 2023, respectively. These amounts included favorable adjustments to transaction costs of $8,000 and $6,400 for the three and six months ended June 30, 2023, respectively. Transaction and integration costs related to the Bergstrom acquisition were $75 for the three and six months ended June 30, 2022. 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”). Kappa manufactures specialty vitamin K2, a fast-growing specialty vitamin that plays a crucial role in the human body for bone health, heart health and immunity. 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. 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 and Health segment. The Company made payments of approximately kr3,305,653 ("kr" indicates the Norwegian krone), amounting to approximately kr3,001,981 to the former shareholders and approximately kr303,672 to Kappa's lenders to pay off all Kappa bank debt. Net of cash acquired of kr63,064, total payments to the former shareholders were kr2,938,917. Net of gains on foreign currency forward contracts of $512, these payments translated to approximately $333,112, amounting to approximately $302,464 paid to the former shareholders and approximately $30,648 to Kappa's lenders. Net of cash acquired of $6,365, total payments made to the former shareholders of Kappa were approximately $296,099. The acquisition was primarily financed through the 2018 Credit Agreement (see Note 8, Revolving Loan). In connection with this transaction, the former shareholders of Kappa have an opportunity to receive an additional payment in the second quarter of 2024 if certain financial performance targets and other metrics are met. There was no contingent consideration liability recorded as of June 30, 2023. The goodwill of $216,383 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 and 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 |  | 17,600 |
Property, plant and equipment |  | 9,854 |
Right of use assets |  | 3,349 |
Customer relationships |  | 88,813 |
Developed technology |  | 15,643 |
Trademarks |  | 5,046 |
Other assets |  | 2,399 |
Accounts payable |  | (3,301) |
Bank debt |  | (30,648) |
Lease liabilities |  | (3,349) |
Other liabilities |  | (4,461) |
Deferred income taxes, net |  | (24,716) |
Goodwill |  | 216,383 |
Total consideration on acquisition date |  | 307,013 |
Decrease to contingent consideration liability |  | (4,037) |
Net gain on foreign currency exchange forward contracts |  | (512) |
Total expected consideration |  | 302,464 |
Kappa bank debt paid on acquisition date |  | 30,648 |
Total expected payments |  | $ | 333,112 |
The estimated fair value of tangible and intangible assets acquired and liabilities assumed is based on management’s estimates and assumptions. In preparing our 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. 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 general and administrative expenses and were $204 and $479 for the three and six months ended June 30, 2023, respectively, and $451 for both the three and six months ended June 30, 2022. The following selected unaudited pro forma information presents the consolidated results of operations as if the business combinations in 2022 had occurred as of January 1, 2021.
|  | Three Months Ended June 30, |  | Six Months Ended June 30,
|  | Net Sales |  | Net Earnings |  | Net Sales |  | Net (Loss)/Earnings
Kappa & Bergstrom actual results included in the Company's consolidated income statement in three and six months ended June 30, 2023 |  | $ | 13,615 |  |  | $ | 1,094 |  |  | $ | 27,745 |  |  | $ | (1,215) |
2023 Supplemental pro forma combined financial |  | $ | 231,252 |  |  | $ | 31,890 |  |  | $ | 463,792 |  |  | $ | 57,218 |
2022 Supplemental pro forma combined financial |  | $ | 254,507 |  |  | $ | 30,005 |  |  | $ | 501,875 |  |  | $ | 59,444 |
The above selected unaudited pro forma information includes the following acquisition-related adjustments: (1) additional amortization of intangible assets and depreciation of fixed assets; (2) adjustments related to the fair value of the acquired inventory, (3) adjustments to interest expense on borrowings at rates in effect during the related period, factoring in estimated payments based on free cash flow, and (4) other one-time adjustments. The pro forma information presented does not purport to be indicative of the results that actually would have been attained if these acquisitions had occurred at the beginning of the periods presented and is not intended to be a projection of future results.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://www.xbrl.org/2003/role/disclosureRef -Topic 805 -SubTopic 20 -Name Accounting Standards Codification -Section 50 -Paragraph 5 -Subparagraph (b) -Publisher FASB -URI https://asc.fasb.org//1943274/2147479907/805-20-50-5 Reference 2: http://fasb.org/us-gaap/role/ref/legacyRef -Topic 805 -Name Accounting Standards Codification -Publisher FASB -URI https://asc.fasb.org//805/tableOfContent + Details
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