Answers / M&A Advisory

What is the difference between a CVR and an earn-out in terms of structuring, risk allocation, and accounting treatment?

A core M&A Advisory interview question — asked in analyst and associate interviews across IB, PE, and the Big 4.

THE SHORT ANSWER

A CVR is a tradable security that gives the holder a right to future payments contingent on specified events (e.g., drug approval), often used in pharma/biotech. An earn-out is a contractual provision in an SPA where additional consideration is paid based on future performance (e.g., revenue targets). CVRs are typically structured as standalone instruments, while earn-outs are part of the purchase price. Accounting: CVRs are classified as liabilities or equity; earn-outs are contingent consideration, remeasured at fair value through earnings each period.

WHAT INTERVIEWERS LISTEN FOR

  • ✓CVR is tradable security; earn-out is contractual
  • ✓CVR for binary events; earn-out for performance
  • ✓CVR classified as liability/equity; earn-out as contingent consideration
  • ✓Earn-out remeasured at fair value through P&L

COMMON MISTAKES

  • ✗Treating CVR and earn-out as identical
  • ✗Ignoring fair value remeasurement for earn-outs

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