Investment markets naturally gravitate towards businesses with a compelling story. New technologies, rapidly expanding categories and large addressable markets are easy to discuss and easy to notice.
Some of the most durable businesses operate very differently. They maintain equipment, distribute components, inspect infrastructure, repair machinery, provide specialist services or keep essential systems operating. Their markets may already be established and their products may have existed for decades. What makes them interesting is the economic structure underneath the surface.
Recent deal activity suggests that investors are paying closer attention to these qualities. KPMG’s Q2 2026 industrial manufacturing M&A report, published in August, describes a market characterised by greater selectivity. Private equity represented 40.1% of industrial manufacturing deal volume during the quarter, while sponsor activity focused on durable industrial niches, platform acquisitions and businesses where operational improvement could support returns without depending on rapid valuation multiple expansion.
That last point is particularly important. When returns cannot be built primarily around buying an asset and later selling it at a higher multiple, the underlying business has to do more of the work. For investors focused on cash generating projects, this brings some relatively ordinary characteristics back into focus.
Consider an industrial equipment manufacturer. The initial sale may be cyclical and relatively infrequent. Once the equipment is installed, however, it creates an ongoing requirement for spare parts, inspections, maintenance, repairs, upgrades and technical support.
The installed base can therefore become an asset in its own right. McKinsey’s February 2026 research on industrial manufacturers found that companies with a high service focus generate an average of 47% of their revenue from services. The firm also found that aftermarket services can produce profit margins up to four times higher than product sales alone. Companies with a strong service orientation showed nearly twice the total shareholder return of less service focused peers in McKinsey’s analysis.
The underlying reason is relatively straightforward. Equipment purchases can often be postponed. Equipment that is already operating still needs to be maintained. Service contracts and subscriptions can therefore make revenue less volatile and less exposed to capital investment cycles. McKinsey notes that customers tend to maintain or even increase spending on these services during downturns.
This can turn a conventional manufacturer into a business with two very different economic engines: equipment sales that create the installed base and recurring services that monetise it over many years.
The same principle extends beyond manufacturing. Inspection companies, maintenance providers, specialist distributors, logistics operators, compliance services and technical contractors can all occupy relatively unglamorous positions in a value chain.
What matters is whether the customer needs them repeatedly. A service that prevents equipment failure, keeps a facility operating or fulfils a regulatory obligation may represent a small part of the customer’s overall cost base while carrying a much larger cost if it is removed.
This can support customer retention and pricing power, particularly where the provider has specialist knowledge, certifications, infrastructure or a long operating history that cannot be replaced easily.
PwC’s 2026 midyear outlook for industrials and services makes a similar observation from the M&A market. The firm says capital remains available for assets offering visibility into sustainable revenues, resilient cash flows and credible routes to value creation. It also highlights continuing interest in maintenance and specialist technical services with recurring client relationships.
These are relatively simple characteristics, but together they can create attractive economics.
Aftermarket revenue also demonstrates why investors need to look below headline revenue figures. BCG studied industrial machinery companies and found that leading service businesses generated gross margins of around 42% and EBIT margins of approximately 20%. The strongest operators also held 38% fewer days of inventory than the industry average, improving capital efficiency as well as profitability.
The comparison matters because a company can increase revenue while becoming more capital intensive at the same time. Additional manufacturing capacity can require factories, machinery, inventory and working capital. Service growth may require less incremental capital, particularly when a company is monetising equipment that has already been installed.
This means two businesses with similar revenue growth can produce very different cash outcomes. For investors, the composition of revenue therefore deserves as much attention as its growth rate.
Another source of opportunity comes from businesses that already exist inside larger organisations. PwC reports that corporate divestitures are accelerating as industrial groups simplify their portfolios and redirect capital towards strategic priorities. This is creating a pipeline of carve outs across manufacturing and other industrial categories.
A business can be non core to a large parent while remaining economically attractive on its own. Inside a conglomerate, a specialist division may receive limited management attention or investment because it represents only a small part of the wider group. As an independent company, the same operation can gain dedicated management, clearer financial accountability and a more focused capital allocation strategy.
KPMG also identifies industrial carve outs as an area where operational discipline can create value, while stressing the importance of understanding working capital, systems, procurement and management depth during separation. The opportunity therefore comes with considerable execution risk. Extracting a business from a parent organisation can expose costs and dependencies that were previously hidden.
The important point is that ‘non core’ and ‘low quality’ mean very different things.
The broader private equity environment strengthens this argument.
Bain’s 2026 Global Private Equity Report says high asset prices and elevated financing costs are making value creation more demanding. The average holding period for assets at exit is now around seven years, while the industry is holding approximately 32,000 unsold companies worth $3.8 trillion.
Longer holding periods place more weight on what happens inside the company while it is owned. Revenue growth still matters, but so do pricing, procurement, capacity utilisation, maintenance, inventory management, customer retention and working capital.
These are rarely exciting subjects. They are also the mechanisms through which an operating company converts activity into cash. KPMG’s latest report captures the shift clearly. Investors are targeting assets where improvements to the operating model can offset financing costs, execution risk and uncertainty around the eventual exit.
That creates a different investment mindset. Rather than asking primarily how large a market might become, investors can ask how effectively an existing business serves the market already in front of it.
None of this means that an established industrial or service business is automatically a good investment.
Some have highly concentrated customer bases. Others require substantial maintenance expenditure, carry excessive debt or consume large amounts of working capital. A recurring service can still have weak margins, while a long standing customer relationship can disappear if switching costs are lower than expected.
Operational businesses therefore require detailed analysis.
The questions are practical:
☑️ How frequently does the customer need the product or service?
☑️ How much revenue comes from repeat customers?
☑️ How essential is the offering to the customer’s own operations?
☑️ What level of maintenance investment is required?
☑️ How quickly does accounting profit convert into cash?
☑️ How concentrated is revenue?
☑️ How much pricing flexibility does the company have?
☑️ Can the business grow without continuously absorbing additional capital?
These questions rarely produce the most dramatic investment story.
They can produce a much clearer picture of investment quality.
There is a reason industrial services, maintenance businesses and other specialist operators continue to attract investment even as capital becomes more selective. Their value can come from characteristics that are difficult to capture in a headline: an installed base accumulated over decades, recurring maintenance requirements, specialist technical expertise, customer relationships, distribution networks and operational processes built through repetition.
Technology can strengthen these businesses further through predictive maintenance, better inventory planning, automated workflows and improved field service productivity. Yet technology is most useful when it improves an existing economic engine rather than becoming the investment thesis on its own.
For investors interested in sustainable cash generation, this distinction matters. A company does not have to reinvent an industry to create value. Sometimes it needs to occupy a useful position in that industry, serve customers consistently, protect its margins and convert a meaningful share of earnings into cash.
The hidden value inside ‘ordinary’ businesses often begins there.
☑️ KPMG, 14 August 2026: M&A Trends in Industrial Manufacturing, Q2 2026
☑️ McKinsey, 24 February 2026: How Japanese Manufacturers Can Master the Aftermarket
☑️ PwC: Global M&A Trends in Industrials and Services: 2026 Midyear Outlook
☑️ BCG, 18 February 2025: Aftermarket Services Drive Growth and Higher Margins for Industrial Manufacturers
☑️ Bain & Company, 22 February 2026: Private Equity Outlook 2026: Gaining Traction
