Ceradyne (NASDAQ:CRDN) has had an uphill battle. Like industry peers DHB Industries (NYSE:DHB) and Armor Holdings (NYSE:AH), the maker of high-tech ceramic parts and materials has soared over the past year, as increased government demand for its lightweight ceramic armor drove sales growth north of 50% and triple-digit earnings expansion over the past couple of quarters.

The problem is this: How do you top performance like that? Buy a company that produces one of your primary raw materials and will boost your top line by somewhere around 90%.

That's what Ceradyne seems to have done with yesterday's announcement that said it would acquire Germany's ESK from parent Wacker-Chemie. The news sent the stock up more than 9% before it settled down to within a buck of its new intraday and 52-week high of $39.90.

To say that Ceradyne is familiar with ESK would be an understatement, as the firms have been working together for more than three decades. ESK's boron carbide has been part of Ceradyne's technical armor line since 1971.

The $136 million purchase will be funded through cash and a newly acquired credit line. (The company was debt-free before.) The move is expected to be accretive immediately upon its completion in the third quarter of 2004, and it offers shareholders plenty of other reasons to be happy.

ESK's $90 million in annual sales will nearly double Ceradyne's yearly take, and ESK's diverse customer base will reduce Ceradyne's reliance on government contracts by nearly 30%. It will also strengthen Ceradyne's relationship with foreign manufacturers, who could become key buyers of the firm's advanced industrial products, like bearings.

Ceradyne currently trades at a P/E close to 40, but given the smart moves that management has made to capitalize on its recent successes, it looks like the firm has earned that multiple and may deserve more.

Seth Jayson first heard about Ceradyne from the smart and enthusiastic folks on the Fool's Fab 15 and Friends board. Take a risk-free trial membership to the Fool Community.

Fool contributor Seth Jayson owns shares of Ceradyne, but no other company mentioned.