This year has seen a surge of contingent value rights (CVRs) in public company M&A transactions. A CVR provides for one or more additional payments after closing to target shareholders based on future events or financial metrics, similar to an earnout in a private company transaction. To date in 2025, there have been 27 completed or pending transactions that include a CVR, compared to only 7, 18 and 9 completed transactions with CVRs in 2024, 2023 and 2022, respectively, according to Deal Point Data.
CVRs are often used in pharmaceutical industry transactions, with payments tied to the receipt of regulatory approvals or the success of clinical trials of a drug in development. An example of this is Pfizer’s acquisition of Metsera following its successful takeover battle with Novo Nordisk, which transaction includes a cash payment at closing plus a CVR tied to three specific clinical and regulatory milestones. However, CVRs can also be based on future financial metrics, such as the take-private of Hologic by funds managed by Blackstone and TPG. That deal includes a cash payment at closing plus a CVR based on revenue of Hologic’s Breast Health business exceeding certain thresholds in FY 2026 and 2027.
Care must be taken when negotiating CVRs to ensure the appropriate balance between protections for the CVR holders and flexibility for the acquiror post-closing. Certain key items include:
- Definition of the CVR milestones. CVR milestones can be tied to a variety of events, including commencement of a clinical trial, receipt of regulatory approval or other milestones. The parties should define these milestones with sufficient specificity. If a financial metric is used, the parties could provide that the metric will be defined and calculated in a manner consistent with how the target has calculated that metric in its historic financial statements.
- Level of efforts required by the acquiror to achieve the CVR milestones. Many CVRs require an acquiror to take all “commercially reasonable efforts” or “diligent efforts” to achieve the CVR milestones. Such efforts could include an obligation to use a level of effort that a similarly situated company would use (or, as an alternative, a level of effort that the acquiror would use for its own products). Other CVRs only require an acquiror to spend a certain amount of money to achieve the CVR milestone. These efforts provisions are often the most highly negotiated portions of the CVR, as they provide protections for the CVR holders, but also could increase the risk of litigation for the acquiror if the CVR is not paid in full.
- Whether the CVR will be tradeable or non-tradeable. Tradeable CVRs benefit the holders by allowing a holder to sell their CVR in the market for cash rather than needing to hold the CVR through the relevant test periods, which often are years after closing. However, tradeable CVRs require Securities Act registration and public reporting, which can be onerous and is often a nonstarter for private equity acquirors. In addition, a tradeable CVR increases litigation risk to the issuer because parties seeking to make a claim under the CVR can purchase the CVR in the market to gain standing to bring a claim. Most CVRs in recent transactions have been non-tradeable.
- Length of the CVR period. The CVR will specify how long the acquiror has to achieve the CVR milestone. In general, the longer the period to achieve the CVR milestone, the longer the target shareholders must wait to receive the payment. If the acquiror is subject to restrictive covenants, then the longer period could also subject the acquiror to such covenants for a longer period.
- Structure of CVR payments. Some CVRs result in a partial payment if certain CVR milestones are achieved, but other milestones are not achieved. Other CVRs provide for an “all or nothing” payment based on whether all milestones are achieved.
- Percentage of outstanding CVRs that can enforce the CVR. CVRs generally specify the number of CVR holders that are required to bring a claim under the CVR. A lower percentage can provide protection to CVR holders, but also raises the risk of litigation against the acquiror if a CVR does not pay out.
We recently updated our guide to CVRs, which can be found here and includes additional helpful information regarding CVRs. If current M&A and equity market trends continue, we can expect transaction structures involving CVRs to be an important part of the M&A landscape. Both acquirors and target companies will do well to be current on developments and structures in CVRs and be flexible in considering their inclusion in appropriate circumstances.
Adam O. Emmerich
Igor Kirman
David K. Lam
Benjamin M. Roth
Victor Goldfeld
George N. Tepe
Chinecherem O. Okoye
