EU Clears Carlyle's Acquisition of BASF's Coatings Business, but Demands Divestment of Nouryon's Polysulfide Assets: What Are the Underlying Risks?

The European Commission has approved the acquisition of BASF's coatings business by U.S. private equity giant Carlyle. However, the transaction – valued at approximately €7.7 billion in enterprise value – comes with a significant condition: Carlyle must divest Nouryon's global polysulfide business and related assets before the deal can be finalized.

This requirement has drawn market attention, particularly given that this is one of the largest M&A deals in the global coatings industry in recent years. The EU's scrutiny focused not on the automotive coatings market, but on the aerospace sealant supply chain.

According to the European Commission, Nouryon is one of the world's leading suppliers of polysulfide polymers, which are an irreplaceable key raw material in the production of aerospace sealants. Meanwhile, BASF's coatings business holds a strong market position in aerospace coatings and related materials. The Commission argued that when a key raw material supplier and downstream businesses come under the same controlling entity, market competition could be adversely affected. Hence, it required Carlyle to divest the relevant assets.

The polysulfide business to be divested includes production facilities in Greiz, Germany, as well as related intellectual property, customer contracts, and employee teams. The Commission stated that after the divestment, the competitive landscape would remain stable, allowing it to approve the acquisition.

BASF's coatings business has long been one of the group's most profitable divisions. It covers automotive OEM coatings, automotive refinish coatings, industrial coatings, and surface treatment technologies, holding leading positions in multiple global markets. According to previously disclosed BASF data, the business generates annual sales of nearly €3.8 billion and employs over 11,000 people worldwide.

In October 2025, BASF announced the sale of the business to a consortium comprising Carlyle and the Qatar Investment Authority. Under the transaction structure, BASF retains a 40% stake, while Carlyle and QIA hold the remaining equity. Upon closing, BASF expects to receive approximately €5.8 billion in pre-tax cash proceeds.

For BASF, this transaction is a key step in its recent portfolio adjustment plan. Over the past few years, the European chemical industry has faced persistent pressures, including high energy costs, slowing manufacturing demand, and intensified international competition. Many chemical companies have initiated business restructuring and asset divestment programs to improve capital efficiency and focus resources on core operations.

From a regulatory perspective, this review also signals an expansion of the EU's M&A oversight priorities. Beyond traditional considerations of market share and industry concentration, factors such as critical raw material supply capabilities, upstream-downstream business relationships, and supply security in specific sectors are becoming increasingly important in large chemical M&A reviews.

In particular, in industries such as aerospace, where supplier numbers are limited and certification cycles are lengthy, regulators are placing a higher premium on maintaining independent supply channels. For investment firms, large acquisitions involving vertically integrated industry chains will face heightened scrutiny and compliance requirements in the future.

With the EU's approval now in place, the much-watched transaction is only one step away from final completion. However, Carlyle must first complete the divestment of the polysulfide business before it can formally acquire BASF's globally renowned coatings assets. This condition has become the most closely watched aspect of the entire deal, even more so than the acquisition itself.