EU regulators approved Carlyle’s BASF Coatings acquisition after requiring the divestment of Nouryon’s polysulfides business to protect competition.
The European Commission has granted approval for Carlyle’s planned acquisition of BASF’s coatings business, but the clearance comes with significant conditions aimed at preserving competition within the aerospace chemicals market. The approval follows an extensive regulatory review that identified potential competition risks arising from the combination of Carlyle-owned specialty chemicals company Nouryon and BASF Coatings. To address these concerns, Carlyle agreed to sell a crucial part of Nouryon’s operations, specifically its global polysulfides business.
The Commission’s investigation focused on the potential impact of the transaction on the aerospace sealants industry. Aerospace sealants play a vital role in aircraft manufacturing and maintenance, and polysulfides are an essential ingredient used in their production. Regulatory authorities determined that the merger, in its original form, could have created a vertically integrated business with the ability to influence the supply of polysulfides, thereby limiting competition among aerospace sealant manufacturers.
A key concern was Nouryon’s strong position in the polysulfides market. The company is one of only two suppliers worldwide capable of providing polysulfides for aerospace applications. Given the highly specialized nature of the product and the stringent certification requirements associated with aerospace manufacturing, alternative sourcing options are extremely limited. Furthermore, changing suppliers is often a lengthy and expensive process for aerospace sealant producers because of the extensive testing, qualification, and regulatory approvals required.
The European Commission concluded that the merged entity could potentially use its market position to restrict or influence access to polysulfides, putting rival sealant manufacturers at a disadvantage. Such a scenario could reduce competition, increase barriers for competitors, and potentially impact innovation and customer choice within the aerospace sector.
Another issue identified during the review involved access to commercially sensitive information. Because Nouryon supplies materials to various aerospace sealant manufacturers, regulators feared that the combined company could gain insight into competitors’ purchasing activities, business strategies, or product development plans. This access to confidential information could provide BASF Coatings with an unfair competitive advantage and distort market dynamics.
To eliminate these concerns, Carlyle proposed a comprehensive remedy package centered on the divestment of Nouryon’s worldwide polysulfides business. The sale includes the production facility located in Greiz, Germany, along with all associated operational assets, customer contracts, intellectual property rights, licenses, and relevant personnel. By separating these operations from the merged company, regulators believe the competitive structure of the market will remain intact.
The European Commission also established strict requirements for the future buyer of the divested business. The purchaser must possess demonstrated expertise in the chemical industry or significant experience managing chemical-related operations. Additionally, the buyer must have a strong understanding of industrial supplier qualification processes, ensuring that the business remains a reliable and capable supplier to aerospace customers worldwide.
According to the Commission, the divestment effectively removes the vertical relationship that initially raised concerns. As a result, competitors in the aerospace sealants market will continue to have access to an independent supplier of polysulfides, preserving fair competition and preventing potential supply-chain disruptions.
The proposed commitments were subjected to a market test involving industry participants and stakeholders. Feedback from this process indicated that the remedies were sufficient to address the identified competition issues. Consequently, the Commission determined that the revised transaction would no longer pose a threat to competition within the European Economic Area.
Implementation of the commitments will be monitored by an independent trustee to ensure full compliance. Additionally, the European Commission retains the authority to review and approve the final purchaser of the polysulfides business before the transaction can be completed.
Carlyle, a major U.S.-based investment firm, owns Nouryon, which supplies specialty chemicals to industries including coatings, adhesives, and sealants. BASF Coatings, a division of the German chemical giant BASF, provides coatings and surface treatment technologies for automotive, aerospace, and industrial applications. With the agreed divestment in place, Carlyle has successfully secured EU approval to move forward with the acquisition.
