C&J Energy Services Inc. (NYSE: CJ) entered an agreement Oct. 25 to buy O-Tex Pumping LLC in a deal that adds the fourth-largest oilfield cementing service provider in the U.S. and the second largest in the Permian Basin.

Houston’s C&J agreed to pay about $240 million for O-Tex, which was founded in 2007 and is majority owned by White Deer Energy LP. C&J will pay for O-Tex by purchasing all of the company’s outstanding equity interests with $132.5 million cash and $107.5 million in stock—roughly 4.42 million C&J shares.

The deal positions C&J as a frontrunner in an oilfield cementing market that Spears & Associates estimates is worth $1.8 billion. The addition of O-Tex “immediately enhances scale and capabilities in a ‘sold out’ service line while allowing for further growth,” C&J said.

Luke M. Lemoine, an analyst at Capital One Securities, called the transaction a “great acquisition” that should be accretive to earnings and cash flow as well as contributing $60 million to 2018 EBITDA. O-Tex’s third-quarter 2017 annualized revenue is about $189 million, with 56% generated from the Permian. The remainder of revenue comes from the Midcontinent and Northeast (16% each) and the Rockies (12%).

O-Tex specializes in primary and secondary downhole specialty cementing services. While the O-Tex acquisition either complements or expands C&J’s existing customer base, the two companies have “little overlap to C&J cementing customers,” C&J said.

O-Tex recently opened a new facility in Pecos, Texas, to meet growing customer demand in the Delaware Basin. The company also has a “sizable presence in the Midcontinent, the Rocky Mountains and the Northeast,” C&J said in a press release.

O-Tex operates eight field offices, eight lab facilities and serves predominately large independent E&P operators. The company also has “one of the youngest fleets in the industry,” including 81 cementing units. About two-thirds of the O-Tex fleet is active, Lemoine said.

John Daniel, an analyst at Piper, Jaffray & Co., noted that in C&J’s September investor presentation the company reported a fleet of 35 advanced cementing units with 29 deployed in the field. C&J had said in August it planned to redeploy the four remaining cementing units into West Texas during the second half of 2017 in order to meet growing customer demand, according to regulatory filings.

Following the deal, C&J said about 78% of its revenue will come from well construction and completions.

Don Gawick, C&J president and CEO, said the strategic transaction will immediately transform the company’s cementing services into one of the largest and most competitive in the U.S.

“The addition of O-Tex to our portfolio advances several of our key strategic goals and strengthens our capabilities as one of the most geographically diverse and technologically advanced providers of well construction, intervention and completion services in the U.S.,” he said. “This transaction meets our criteria for strategic growth in that it expands the scale, geographic reach and customer base of a core service line, notably at a time when our existing cementing assets are operating at full capacity.”

Gawick said the company has positioned itself to capitalize on further growth opportunities. Pro forma for the transaction, C&J said it will have a liquidity position of $296 million.

Evercore Group LLC acted as financial adviser and Vinson & Elkins LLP as legal adviser to C&J. Locke Lord LLP was O-Tex’s legal adviser.

Darren Barbee can be reached at dbarbee@hartenergy.com.

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