What Do I Need to Know About Contingent Value Rights?

After a brief dip in popularity in the Canadian public M&A market, contingent value rights, or CVRs, have seen renewed interest as acquirors and target companies look to bridge gaps on value attributable to a future milestone, asset or performance outcome. CVRs provide target shareholders with a contractual right to receive additional consideration post-closing if specified payment triggers are satisfied during their term; they are used to address circumstances where the parties agree on the base value of a company but disagree on specific (and contingent) drivers of value. 

While seen in public M&A transactions for decades, CVRs have increased in prevalence in Canadian transactions in the past two years, including in a number of recent significant Canadian transactions. CVRs have been used in transactions involving targets in a range of industries — technology, pharmacy, energy and mining — with payments based on a range of metrics, including post-closing financial or operational performance, and future asset outcomes. 

What are CVRs?

A CVR is a contractual right issued as part of the consideration delivered to target shareholders on closing that entitles the holder to receive cash, securities or other consideration if specified circumstances occur within a specified period of time following closing. In public M&A transactions, which involve a large group of public shareholders, purchase price adjustments or earn-outs are not a practical alternative. CVRs can provide similar economics to those of a private company acquisition. However, contemplating CVRs can lead to different considerations and negotiating dynamics.

What can CVRs provide?

CVRs can help resolve otherwise unbridgeable gaps in value or address financing limitations. From an acquiror’s perspective, CVRs allow the transaction to proceed without forcing it to pay full value upfront for otherwise uncertain upside. Conversely, from a target board’s perspective, CVRs allow the target to enter into a transaction without depriving target shareholders of the opportunity to share in that upside. By reducing the upfront consideration payable at closing, CVRs can also function as a form of deferred financing for the acquiror. 

These benefits do come at a cost — CVRs add incremental complexity and cost to structuring and negotiating a transaction, increase the potential for post-closing disputes, and can impose liabilities, operational constraints and reporting burdens on the acquiror post-closing. 

What are the key terms of CVRs?

• Economic terms: payment trigger and formula. The CVR agreement will establish, among other things: (1) the relevant business, product, asset, property, regulatory approval, revenue, resource or other metric upon which payment is triggered; (2) the time period for measurement; (3) the accounting or technical standards used to determine satisfaction of the trigger(s); and (4) the form and structure of the payment(s), including whether payment is to be made in cash, securities or other consideration and whether it is binary, graduated or linear. 
• Governance and process terms: 
  • Efforts covenants and operating flexibility. Given that the acquiror will control the acquired business post-closing and, therefore, whether the CVRs pay out, target boards rely on efforts-based and other covenants in the CVR agreement that establish the required minimum level of performance or cooperation in order to satisfy the payment triggers. Acquirors will, conversely, desire flexibility to operate the acquired business and so seek to limit such covenants. 
  • Reporting, audit and dispute mechanics. The CVR agreement will provide for specified reporting obligations, audit or objection rights, and the process for resolving disputes.
• Administrative terms: transferability, listing and administration. CVR terms will specify the extent to which CVRs may be transferred (with transferability increasing value to holders and avoiding CVR ownership through a potentially multi-year measurement period) and whether the CVRs will be listed on a stock exchange. Transferability and listing generally increase securities law complexity, administrative requirements (including third-party agents), reporting burdens and litigation risk.

What are the key considerations?

CVRs are often introduced as a solution in search of a problem. Acquirors and target boards must first determine whether a CVR solves a real valuation problem or instead just adds complexity to a transaction. CVRs are most useful where the contingent event is material, objectively measurable, likely to be resolved within a commercially acceptable period and able to be measured without excessive discretion. Where the payment trigger is highly dependent on the acquiror’s post-closing business decisions, target boards will pursue CVR terms that address budgets, business continuity, asset transfers, affiliate transactions, reporting, audit rights, dispute resolution and remedies. Often, such constraints on the combined business serve as impediments to the issuance of a CVR. 

The parties should also consider how the CVR will be valued and explained to shareholders and the broader market. Target boards should expect valuation, fairness and disclosure matters to be scrutinized, particularly if the transaction involves a related party or other potential conflicts of interest. Where a CVR is non-transferable and the satisfaction of payment triggers is uncertain, both financial advisors and target shareholders may discount the value heavily, which may impact the board’s thesis as to overall transaction consideration value and, consequently, market reaction to the announcement.

What are examples of recent Canadian transactions with CVRs?

The inclusion of an uncapped CVR in Oil Search’s proposed acquisition of InterOil Corporation in 2016, payable based on certified resources at an InterOil gas fields project, highlighted the range of transactions where CVRs could play a role. Several recent significant Canadian public M&A transactions have featured CVRs, in mining, technology and other sectors.

In Rupert Resources’ pending acquisition by Agnico Eagle, announced in April 2026, each Rupert share will be acquired for upfront consideration consisting of Agnico Eagle share consideration, representing approximately C$12.00 (based on the five-day volume weighted average trading price of the Agnico Eagle shares at the time of announcement), plus a 10-year CVR providing for holders to be paid up to C$3.00 in cash if certain mineral reserves and commercial production milestones are met. The CVRs will be transferable, and Agnico has agreed to make efforts to have them listed on the Toronto Stock Exchange.

Blackline Safety’s pending take-private by Francisco Partners, also announced in April 2026, is an example of a technology-sector CVR. At closing, target shareholders will receive, for each Blackline share, C$9.00 in cash, plus a CVR entitling the holders to up to C$0.50 in cash. The CVR payment is based on the achievement of specified annual recurring revenue (ARR) targets for a period measured in October 2027, with a graduated payout, based on a linear interpolation, if the calculated ARR is above C$145-million (but less than C$148.9-million), and the full C$0.50 payout if the calculated ARR is equal to or above C$148.9-million.

In G Mining Ventures’ pending acquisition of G2 Goldfields, yet another deal announced in April 2026, target shareholders will receive both G Mining shares and shares of a newly established spinoff entity. In this transaction, the spinco entity will be the only holder of the 10-year CVR. The CVR will entitle the spinco entity to up to US$200-million based on measured and indicated mineral resources at certain G2 properties not being transferred to the spinco entity. 

Finally, in Neighbourly Pharmacy’s take-private by Persistence Capital Partners, announced in January 2024 and closed in March 2024, target shareholders received C$18.50 in cash, plus a CVR entitling the holder to an additional cash payment of C$0.61. Payment under the CVR would be triggered if fiscal 2026 pro-forma adjusted EBITDA is at or above C$128-million. 

What Canadian securities law considerations apply?

Notable Canadian securities law considerations include, among others:

• Characterization of the CVR as a “security.” A CVR may be considered a “security” under Canadian securities laws, even if payments are solely cash. The parties will therefore want to ensure a prospectus exemption is available to distribute CVRs as part of the transaction. In addition, the parties should consider whether the target company can cease to be a “reporting issuer” under Canadian securities laws and whether the acquiror (if not already a “reporting issuer” in Canada) would become a “reporting issuer” by virtue of issuing the CVRs. Canadian regulators have accepted applications for target companies to cease to be a reporting issuer, but the analysis is an inherently fact-specific exercise, with CVRs that, among other things, are non-transferable, unlisted, do not represent an equity or ownership interest and do not otherwise support an ongoing public disclosure rationale justifying the regulatory decision. 
• Valuation requirements. If the transaction involves related-party or other conflict aspects, minority approval and a formal valuation may be required; in such instances, the independent valuator for the transaction may be required to value the CVRs. In addition, in all cases, the target board and/or independent committee and their advisors will want to assess the probability, value and enforceability of the contingent consideration represented by the CVRs as part of their assessment of the transaction. 
• Circular disclosure. The management information circular mailed to target shareholders related to the transaction will need to clearly describe all terms and attributes of the CVRs, as well as any valuation, risks associated with the CVRs and tax consequences.

CVRs are not a universal solution, but they are a practical tool for transactions affected by questions as to future value. They can enable an acquiror and target to bridge valuation gaps while preserving upside for target shareholders. CVRs require disciplined drafting, careful board process and early securities law analysis to avoid converting today’s valuation compromise into tomorrow’s dispute.

For more information, please contact the authors or any other member of our Public M&A group.