This Small-Cap Just Made a Big Move

As a small-cap chemical company operating in an industry dominated by titans like Dow Chemical, Balchem just made a huge deal to strengthen its global positioning.

Apr 3, 2014 at 9:12AM

One of my favorite companies in the specialty chemical space just became a whole lot more enticing as an investment. While already projected to grow at solid levels, Balchem's (NASDAQ:BCPC) latest acquisition of SensoryEffects, a privately held supplier of customized food/beverage solutions, has big implications for the small company and its shareholders. 

Following the announcement on March 31, shares of Balchem rallied over 22% the next day, proving the deal was no April Fool's joke. What's more is that the move serves as yet another reason why investors should consider Balchem over larger industry competitors like Dow Chemical (NYSE:DOW).

The acquisition
Balchem announced that it was to acquire the St. Louis, Missouri-based SensoryEffects for $567 million in cash. The Performance Chemicals and Ingredients Company is expected to generate $260 million in revenue and $53 million in earnings in fiscal 2014. 

Since the deal is expected to be immediately accretive to Balchem's earnings per share, the implications for the small company and its investors are huge. In 2013, Balchem generated $337.2 million and $44.9 million in net earnings. This means that the addition of SensoryEffects will almost double Balchem's revenue in 2014, taking the company's expected sales of $369 million up to approximately $629 million. 

Prior to the acquisition, analysts on average have projected Balchem to grow revenue 9.4% in 2014 to $369 million. This consensus estimate will need to be revised in a big way after the announced deal.

Solid fit
In addition to being a hefty contributor to Balchem's growth, the acquisition of SensoryEffects makes sense because it will blend seamlessly with Balchem's business. As a provider of food/beverage solutions that enhance sensory properties like taste and texture, SensoryEffects' business will be combined with Balchem's existing food, pharma, and nutrition segment.

Balchem's President and CEO Dino Rossi explained in the company's release, "We have found a unique complement for Balchem with SensoryEffects. Both of our companies have built stellar reputations for quality products that address the food and beverage industry's most specialized needs. The prospects of a combined Balchem and SensoryEffects will canvass an even broader range of food customers." 

The deal is expected to create a leading supplier of specialty chemicals to the food industry in Balchem. CEO Rossi continued, "The united experience and technical problem solving capabilities will ultimately make our company one of the most comprehensive food ingredient solution companies globally." 

Aggressive growth
With a market capitalization just under $2 billion after the recent run up, Balchem is still a small company, especially when compared to an industry titan like Dow Chemical, whose market cap is approximately $60 billion. This means that Balchem is still capable of growing very aggressively through strategic acquisitions like that of Sensory Effects.

As one of the largest chemical companies in the world, Dow Chemical is expected to generate a staggering $59 billion in fiscal 2014. The company, due to its already massive size and global positioning, cannot easily grow revenue anymore. In 2014, Dow is expected to grow sales only 3.4% and in 2015 the company's performance is expected to improve only slightly to 4.2%.

In fact, Dow Chemical has been moving in a completely different way recently, as it has been selling portions of its business to competitors. In October of last year, the company sold its global polypropylene licensing and catalysts business to W.R. Grace for $500 million. The move is part of Dow Chemical's stated plan to tighten the focus of its remaining businesses. 

Bottom line
Balchem is on its way to becoming a formidable force in the global food/beverage specialty chemical segment. The company's acquisition of SensoryEffects not only adds significant growth in the short and medium-term, it will enhance long-term brand awareness and increase Balchem's industry positioning.

Accordingly, even after the company's recent surge in share price, investors seeking long-term growth from a small-cap should consider the aggressively growing Balchem.

6 more stock picks poised for incredible growth
They said it couldn't be done. But David Gardner has proved them wrong time, and time, and time again with stock returns like 926%, 2,239%, and 4,371%. In fact, just recently one of his favorite stocks became a 100-bagger. And he's ready to do it again. You can uncover his scientific approach to crushing the market and his carefully chosen six picks for ultimate growth instantly, because he's making this premium report free for you today. Click here now for access.


Philip Saglimbeni has no position in any stocks mentioned. The Motley Fool recommends Balchem. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Money to your ears - A great FREE investing resource for you

The best way to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as “binge-worthy finance.”

Feb 1, 2016 at 5:03PM

Whether we're in the midst of earnings season or riding out the market's lulls, you want to know the best strategies for your money.

And you'll want to go beyond the hype of screaming TV personalities, fear-mongering ads, and "analysis" from people who might have your email address ... but no track record of success.

In short, you want a voice of reason you can count on.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich," rated The Motley Fool as the #1 place online to get smarter about investing.

And one of the easiest, most enjoyable, most valuable ways to get your regular dose of market and money insights is our suite of free podcasts ... what we like to think of as "binge-worthy finance."

Whether you make it part of your daily commute or you save up and listen to a handful of episodes for your 50-mile bike rides or long soaks in a bubble bath (or both!), the podcasts make sense of your money.

And unlike so many who want to make the subjects of personal finance and investing complicated and scary, our podcasts are clear, insightful, and (yes, it's true) fun.

Our free suite of podcasts

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. The show is also heard weekly on dozens of radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable. Rule Breaker Investing and Answers are timeless, so it's worth going back to and listening from the very start; the other three are focused more on today's events, so listen to the most recent first.

All are available for free at

If you're looking for a friendly voice ... with great advice on how to make the most of your money ... from a business with a lengthy track record of success ... in clear, compelling language ... I encourage you to give a listen to our free podcasts.

Head to, give them a spin, and you can subscribe there (at iTunes, Stitcher, or our other partners) if you want to receive them regularly.

It's money to your ears.


Compare Brokers