Melrose shows the way to do it

But Melrose today announced that it had raised £750 million of debt and a £291 million tranche of equity - more than double what it currently has out there - to secure the takeover and refinancing of engineer FKI, a company it has been pursuing for some time.

Melrose is unusual in that it behaves like a private-equity fund - buying, improving and selling on other businesses but doing so as a quoted vehicle so that its shareholders get all the benefit.

Miller and his colleagues have form in the art of restoring value in under-managed businesses. Last time out, they more than doubled the value of McKechnie - a business bought from Cinven, which itself is said to be no slouch at the private-equity game - in a little over two years.

No doubt it was the memory of that successful deal that helped open wallets this time round, although even with a track record it was probably not as easy as Investec and JPMorgan Cazenove have made it appear.

What the successful funding and placing also shows is how the market has become much more discerning of late. Many private-equity deals are stuck but that is because in these troubled times people want a bit more than the quick wins from financial engineering which is often all private equity has to offer.

In contrast, what attracts them to Melrose is its ability to deliver operational improvement.

Good test for a strategy formula

It is interesting that the day after Ernst & Young announced that it is going to run Europe and much of the rest of the world as one business - something accountants have always shied away from in the past - new Logica boss Andy Green, who was recruited in January from BT, revealed a similar ambition in his long-awaited strategic review, unveiled today.

Logica has a footprint across Europe, to the extent that some 80% of its business is outside the UK but, says Green, it has never been run as a unified whole. Ironically, a company whose business is systems integration has never been able to integrate itself. However, Europewide thinking is what more of the clients want. In utilities, for example - a sector in which Logica is strong - its client companies such as EDF, E.ON and RWE are expanding across Europe. In the wake of that come the systems integrators, trying to make sense of what their clients have bought, or at least to make it manageable.

Stock-market analysts tend to judge strategic reviews in blood - the bigger the cost cuts, the better they like it, if only because it makes it easy for them to do their earnings forecasts without actually having to judge whether the new plan makes commercial sense.

This review may therefore be a bit soft for them. Although there will be a reduction of overhead - the central services the customer does not see bearing the brunt of a near-10 % reduction in headcount - it is a long way short of the hatchet job some were hoping for.

Instead, Green is pinning his hopes on an organic growth strategy whereby all the businesses will be encouraged to sell more, with the core pitch being that no rival can mobilise Europewide best practice the way Logica can, while at the same time delivering a depth of local understanding his American and Indian rivals do not have. Indeed, they, being less inclined to pander to Europe's still deep-rooted cultural differences, do not see the need for it.

Whether that is enough to give him sufficient edge is the moot point. It could work provided he manages the differences, egotistical as well as cultural, that have kept the businesses separate until now, but he does need to be able to hold on to his good people, and creative computer people are notoriously mobile.

Still, it is a good time for a turnaround. In tougher times, quality sells, and firms without it get found out. Logica has always had the talent and a good reputation with clients. What it lacked was the ability to make money out of it, and that is why shareholders sent for Green.

A similar move, in which the business-building entrepreneur was replaced by a leader whose job was to wring out the best from what had been bought, restored the fortunes of Misys. It will be a good test of the formula to see if it also works at Logica.