European M&A will boom in 2016, says Fitch

European companies are more likely to contribute to a boom in mergers and acquisitions than significantly increase dividends in 2016, according to research from rating agency Fitch.

A survey of senior credit investors found eight out of ten predicted the amount of corporate cash used on M&A in the next 12 months will be "significant" (35%) or "moderate" (48%), which Fitch said would be supported by continued easy access to cheap debt funding for investment grade issuers.

Sectors that are forecast to see the most M&S spending are construction and building materials, gaming, pharmaceuticals, capital goods and telecoms, while weak oil prices and low company valuations also create opportunities for purchases in the oil and gas industry.

Capital expenditure is seen as the lowest priority for corporate spending, according to the Fitch Ratings report, with only 3% expected a significant amount of spending on capex.

"Shareholder returns were also seen as secondary to M&A," Fitch said, with 15% of respondents saying spending on dividends would be significant and 8% saying the same for share buybacks.

The agency said this supported its view that weak economic growth prospects mean European companies will see little incentive to invest for organic growth, but will seek acquisitions to boost revenue and reduce costs.

"We expect EMEA corporates' cash spending on shareholder returns to be muted in 2016 as many companies prefer to focus their resources on acquisitions," Fitch said.

"If M&A opportunities dry up, shareholder returns could rise, especially as many corporates have strong liquidity and little incentive to repay low-coupon debt," it added, which was seen as most likely in the chemicals, aerospace and defence, and media and entertainment sectors, where significant consolidation has been underway for longer than other sectors.

Fitch's quarterly survey polled managers responsible for roughly €7.5trn (£5.29trn) of fixed-income assets.