I came across a statistic a few weeks ago in the New York Times describing in detail how we’ve already passed the $2 trillion mark in M&A activity for 2007. At this pace, M&A activity in 2007 will break the record set just last year.

I have to admit, it doesn’t make all that much sense to me. And it’s not the "why". I know why the deals are taking place. With this much liquidity in the market and with easy access to cheap capital, deals are bound to get done. In fact, the OECD published a report last week blaming increased M&A activity on excess foreign exchange reserves in countries such as China, Japan, and India; recycled petrodollars from countries like Russia and Saudi Arabia as result of elevated oil prices; and interest rates that have been at historical lows across the globe over the past six years.

This certainly explains the private equity side of the story. Again, as a private equity manager, I am flush with investor cash. Investment in my funds is at an all-time high, and I can borrow very cheaply. So I do what I’m paid to do - buy companies.

What amazes me is the amount, and level, of strategic acquisitions that have taken place in this market! In this environment, where the market for firms is not cheap (the premia paid for firms is running higher than the 30% historical norm) and where strategic buyers have to compete with private equity buyers, I’m just not sure I see the logic in many of the deals. It’s hard enough to integrate an acquired firm in the best of cases. And again, most strategic acquisitions fail. Paying more for an acquisition certainly will not make the integration any easier. So why? Why, why, why?

True, strategic acquirers also benefit from low interest rates. But as with home prices, when interest rates are low, prices of companies tend to rise. Although you can afford to pay a greater price for a given asset with lower interest rates (because servicing debt is more manageable), unlike the housing market however, strategic acquirers must generate hard synergies that exceed the acquisition price in order to make a deal worthwhile. Do the acquirers really believe that they’ll be able to generate the synergies necessary to make these deals pay off? Why should we expect the acquisition failure rate to be any lower than the 50-80% historical norm? If anything, given the inflated prices, we should plausibly expect failure rates to be greater. Also, in a struggling economy (and we are in a struggling economy flirting with recession), do acquirers believe that the their target firm’s business will improve in the near term? Do they think it will be easy to increase sales?

And it’s not just the volume of deals, but the value of the strategic deals that have been announced that I find outrageous. When I look at proposed deals like ABN-AMRO and whoever wins that bid, Alcoa and Alcan, Thomson and Reuters, News Corp and Dow Jones, IntercontinentalExchange and CBOT, Abbott Labs Diagnostics and GE, I scratch my head. None of these deals was for less than $5 billion, and the average was nearly $30 billion. Incredible!

Although surely not all of these deals will end in failure, but the sheer quantity (and volume) of deals makes me wonder if in a few years we’ll wonder what the heck we were thinking. My guess: YES!

I attended a conference last week at the London Business School. It was a fascinating conference that addressed some important issues facing not only the field of strategy, but business schools more generally. The topic was about the relevance of business schools, and the research its scholars produce. The central question of interest was, "Does our research matter to practice?"

It’s important to recognize that the conference was in honor of Sumantra Ghoshal, a luminary in the fields of management and international business who recently passed away, …and certainly before his time. Although I did not have the pleasure to know Sumantra personally, it goes without saying that his research had an impact on my career. To claim otherwise would be downright foolish. Whether you agreed with Sumantra’s borderline dogmatic opinions or not, he’ll surely be missed, and all those who spoke at the conference remembered him fondly - sharing their favorite (and often humorous) stories about their interactions with him. The reason for a conference on managerially relevance was because Sumantra believed so strongly that research should be both rigorous and relevant.

It was fun debating managerial relevance because this goes to the heart of business education. On the one hand, business schools are a form of trade school - a vocational program for future (and sometimes current) managers. On the other hand however, business schools are populated by faculty who have latched on to normal science and scientific paradigms in an effort to emulate the harder sciences.

From the 1960’s onward, business schools increasingly adopted models rooted in base disciplines of economics, sociology, and psychology in order to look more like their counterparts in arts and sciences programs, to garner greater respect in the scientific community, and to move the field toward serious, rigorous science. These actions were taken in order to address criticisms that business education was unscientific, imprecise, and frankly, not very good because business schools employed former managers to share war stories with its students. Rather than receiving good sound knowledge that students could apply across various situations and contexts, they were treated only to anecdotes, that while interesting, really did not provide anything more than a nice story.

Over the past 40 years, business schools have been fairly successful in adopting a scientific, disciplinary focus. In fact, in my opinion some of the top minds in the fields of economics, sociology, and psychology can be found in business schools. The question now has become, did business schools overshoot? Have we become so rigorous that we fail to matter anymore?

The unique thing about this conference was that LBS brought in managers to give their opinions of our research. That was really neat! It was fun to hear what our constituents think of us. Quite frankly though, I was not surprised to hear that most of the managers there thought that our research does not matter much to them. The managers claimed that they were too busy to read academic books, and that they had little interest in our academic journals. Given the demands on their time, I was not bothered by this in the least. I quite expected it. But that said, I also do not think that it makes us irrelevant.

Some of the attendees at the conference were of the opinion that we have become too rigorous and that managers are losing interest in business schools. They pointed to recent articles by Bennis & O’Toole (and others) to support the claim that business schools have abandoned their constituents and, as a result, are on a glide path to extinction. That could very well be, and ultimately time will tell, but I think some of us might have been a little shortsighted in decrying the end of business schools as we know them. Moreover, I think we do have a profound influence on practice, although not always in the ways that some of us at the conference recognize.

For one thing, applications to business schools are at, or near, all-time highs. So it does not seem that prospective students are voting with their feet and electing not to come. It could be argued however that students aren’t coming to business schools to learn, but that the degree itself grants them legitimacy. So smart people in, smart people out. Second, faculty salaries are at an all-time high and they continue rise at a pace that’s greater than the rate of inflation. Again, if we were completely irrelevant, at some point demand for our services would have to drop off. But who knows, maybe the population is shrinking such that we have fewer candidates entering Ph.D. programs leading to a shortage of supply of faculty - so the higher wages could simply be a supply-side rather than demand-side phenomenon. Third, and although I’m not an expert in this area, I believe that executive education programs are well subscribed.

We also impact practice in other ways too. For example, hardly a day goes by that I see a newspaper without a quote from business school faculty. We are constantly asked to give our opinions on current events. What’s more, business school faculty are often asked to inform policy - whether  by proffering opinions to politicians or testifying on business practice. In this sense then, we help shape the game and inform the agenda - helping decide which issues are important and which are not.

In addition, we have a profound impact in the classroom. We pass along information about the state of research in the field, although admittedly in a watered down fashion. Nevertheless, students are exposed to state of the art research, and I often receive e-mails from former students asking for input and recommendations on various topics, and information on where to find relevant research. In that sense then, we serve an important function as translators and dissemenators of scientific knowledge.

Do I believe that business schools  ought to be relevant? Absolutely. Do I believe that rigorous research serves an important role in our field? Absolutely. Do I think that we are failing in our goals to be both relevant and rigorous? I’m not so sure yet where I stand on that issue, …although I admit that I think we’re doing a pretty good job. While I absolutely think it is worthwhile to consider these issues, I think we need to gather more data and let the data speak rather than come to any hasty conclusions. But I do believe that the London Business School conference on Managerial Relevance was a worthwhile starting point and I hope they continue the tradition!