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 (BCPC -0.47%) 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 (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.