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KMG Chemicals Incorporated (KMGB) Uses Inorganic Route to Dominate Multiple Business Niches

KMG Chemicals has a proven track record of intelligent inorganic growth. It focuses on market segments with clearly defined boundaries with significant entry barriers. It is therefore able to provide investors with reasonably assured and timely returns on acquisitions. Though each inorganic growth step is in a distinct niche, there is a broad synergy in terms of building shares of protection and preservation markets.

Most of the company’s revenues come from the specialized, though low-profile market, for protecting telephone utilities from pest attacks. The company has a position of particular strength in protecting wood used for poles and other parts of conventional transmission systems. It has branched from wood preservation into protecting animals from flies and other pests, as well as in keeping crop fields free of weeds through generic herbicides.

The latest acquisition of the company takes it to the exciting and new field of protecting and preparing semiconductors. Significantly, the process chemical company it has bought for this entry has a base in Italy, which adds new values to the owned and toll manufacturing and storage facilities that the acquiring company has in Texas and in Mexico. The ability to produce products in Mexico for sales in North America is a profitable business structure and a competitive strength of the company.

The company has achieved a 9.86% net profit margin and 17.13% return on average equity during 2007. It has superior growth prospects both in its traditional and new business lines.

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