LONDON, December 19 (Fitch) Fitch Ratings says in a new report that credit profiles in the European Diversified and Capital Goods Companies sector will evolve in 2015, as companies are implementing transformational portfolio changesa shift from the evolutionary realignments over the past few years. We expect material M&A activity with multiples reaching pre-crisis levels, as companies are expected to spend in excess of EUR4.5bn in net acquisitions. The rating implications of these actions are mixed and will depend on the change in business mix and the use of proceeds.In the absence of further large debt-funded M&A, we maintain a stable rating outlook for the sector, supported by gradual improvement in economic trading conditions in developed markets, which coupled with past cost savings efforts provides adequate rating headroom at current ratings. However, large shareholder returns and M&A will consume internally generated cash flow and limit capacity for material debt reduction. Ratings of companies such as Volvo, with limited financial headroom could come under pressure, if the company embarks on large acquisitions, the expected recovery in trading conditions or cost savings progress is slower than expected.
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