What Does Story Deal Mean?
A story deal refers to a potential acquisition opportunity of a company that is going through significant transition and has a fair amount of 'hair'. Typical examples of story deals would be M&A transactions involving under-performing companies, companies in difficult or changing industries or those with dysfunctional management teams. The term is most frequently used by private equity firms. It probably originated from the fact that stories of 'here is what we are going to do going forward' needed to be told to sell the deal to other stakeholders like financial institutions, LP investors and investment committees.
Divestopedia Explains Story Deal
In a story deal, value is created through superior operations and strategic execution. Some private equity groups are value investors that generally seek opportunities where they can add value by recruiting new management, improving operations or implementing new strategies. Because of the 'hair', story deals usually sell at a discount.
In times of M&A exuberance, private equity firms can make much more heroic assumptions about future earnings growth and their ability to turn around a story deal. This often leads to over payment for less desirable acquisition targets. Many private equity investors try to stay disciplined by focusing more on profitability and cash flow and less on story deal businesses.