Contingent consideration gains momentum: 
is Australian public M&A next?

In brief

• CVRs have become an increasingly popular tool to bridge valuation gaps in US public transactions and Australian private transactions in the past year. We have not seen the same level of traction in Australian public deals, however some recent examples and the benefits of CVRs provide scope for greater adoption. 
• CVRs should be considered as a genuine option for deal consideration, particularly in situations where the value of the target company depends on future events. 

Contingent consideration gains momentum: is Australian public M&A next?

What are CVRs?

CVRs are a form of contingent consideration which provide target shareholders with a right to receive additional consideration from the bidder upon the satisfaction of specified conditions. Trigger events can include subsequent liquidation events or on-sales, financial milestones, resource discoveries, clinical trial successes or critical regulatory approvals.

CVRs allow a bidder and target to bridge valuation gaps, which is particularly helpful where there is some uncertainty about the value of the target company. This uncertainty may be driven by known or unknown issues where it is difficult to assess the quantum of the financial impact. This may include tax disputes or audits, regulatory investigations, litigation which is yet to be determined or where a target has an uncertain, but possibly substantial, future payment or milestone. 

Gaining momentum in US public M&A and Australian private M&A markets 

In the US, the use of CVRs in public M&A transactions surged in 2025 – 27 public deals involved a CVR, compared to 7, 18 and 9 completed CVR transactions in 2024, 2023 and 2022, respectively. Uses have ranged from pharmaceutical industry acquisitions, with payments contingent on regulatory approvals or successful trials, to earn-out like payments by a private equity acquirer that are contingent on future financial performance.

Our soon-to-be-released Australian Private M&A Report, which will look back on 2025 deals, will highlight a similar rise in contingent consideration structures in private M&A here in Australia. Contingent payments featured in 26% of all private deals. Financial sponsors led the charge in their efforts to bridge valuation gaps and align incentives with management, using contingent payments in 29% of their deals (up from just 5% in 2024).

Will this momentum shift into Australian public M&A transactions?

We have not seen the same level of traction in Australian public deals in recent times. However, we think that there is scope for CVRs to be used more broadly. A few recent examples illustrate this.

Under the proposed scheme involving ASX-listed Little Green Pharma and Cannatrek, Little Green Pharma will provide Cannatrek shareholders with scrip consideration in the form of new ordinary shares in Little Green Pharma plus contingent value shares. These contingent value shares provide Cannatrek shareholders with the right to receive additional ordinary shares in Little Green Pharma subject to the future determination¹ of the respective pre-implementation liabilities of both parties. The relevant liabilities include tax liabilities, litigation, bad debts and governmental investigations. 

Similarly, the proposed scheme involving Blue Ocean Monitoring and Helsing Australia features a contingent earn-out structure. If the proposed scheme is implemented, Blue Ocean shareholders will initially receive $3.00 per share, with two additional tiers of scrip consideration payable in the future if the enlarged group successfully enters certain government-led defence contracts currently being pursued (worth up to an additional $0.80 per share and $3.20 per share, respectively).

Both structures bridge the value gap and strike a balance between providing upside for target shareholders and flexibility to bidders. Importantly, provided there is sufficient disclosure in the scheme booklet, the court in each case did not see the use of contingent consideration as a reason why it would decline to approve a scheme of arrangement at the second court hearing. As such, despite limited take-up in recent years, there is no overarching impediment to using CVRs in Australian public M&A transactions.   

Looking back a little further, the below schemes of arrangement each contained a contingent component to the scheme consideration: 

• Macquarie Asset Management’s acquisition of BINGO Industries in 2021, where the scrip consideration option involved an earn-out dividend contingent on BINGO’s future financial performance; and 
• Netwealth’s proposed acquisition of Praemium in 2021, which involved a CVR tied to the outcome of a separate sale process for Praemium’s international operations.²  

Each of these Australian public company examples (and various older examples, such as Wesfarmers' acquisition of Coles and Yancoal’s acquisition of Gloucester Coal) were structured as schemes of arrangement. Schemes are more conducive to contingent consideration than takeover bids, as the law requires consideration under a takeover bid to be paid within 21 days of the offer closing. However, a bidder under a takeover could issue a special security within the 21-day period, which entitles the holder to the contingent consideration. CVRs may therefore be utilised in both forms of Australian public M&A transactions. 

In addition to bridging valuation gaps, target and bidder boards may be drawn to CVRs in public M&A for their various other benefits, including: 

• providing downside protection, such as where a bidder offers scrip and there is a concern that the value of the bidder’s scrip will decline post-completion (Coles and Gloucester Coal are prominent examples of this approach); 
• lowering up-front financing costs for the bidder, while providing target shareholders with an opportunity to achieve price expectations; 
• enhancing deal certainty, by addressing deal risks through contingencies, rather than bid conditions; and
• mitigating any concerns that the target is being sold too quickly or too cheaply, given upcoming milestones. 

However, if using CVRs, parties must also be aware of the risks, including: 

• complexity, which can lead to difficulty in valuing the contingent consideration, illiquidity, and potential structural or drafting loopholes; 
• arbitrage opportunities;
• potential tax complexity for the target shareholders (and the bidder) (see further our prior article on this topic);
• potential for dispute; and
• potential credit risk and performance risk for the target shareholders (including that the contingencies are never met or that the bidder fails to make payment if the consideration is not adequately secured).

In the right circumstances, a thoughtfully structured CVR can unlock transactions that might otherwise be at an impasse. Against the backdrop of market volatility and valuation misalignment, which was a feature of 2025 deals as noted in our 2026 Global M&A Outlook, CVRs offer a path forward. With contingent consideration gaining momentum in US public M&A and Australian private M&A markets alike, company boards and dealmakers in the Australian public M&A space would be well-served to consider CVRs as a genuine tool in their arsenal.

Footnotes

1. The amount is to be determined on the second anniversary of the implementation date (or, if liabilities remain unresolved, upon their determination or by the fourth anniversary). 

2. Netwealth ultimately abandoned the proposal after Praemium rejected it.