Lots of takes on the the Pepsi Co write down of $300M earn out to $12M that miss the mark. Here are a quick explainer on different types of M&A payouts, what happened with Poppi, and how to value with probability. Price vs CVRs and Earn Outs / Purchase price represents the fair value of the business today with growth price in paid out in cash and equity when the deal closes. // CVRs (Contingent Value Rights) are ways for investors to get paid more for future growth post closing. Per above, growth needs to be priced into the purchase price. If future growth, however, is contingent on new business lines with no track record, then CVRs could make sense. /// Team earn outs are ways for the team to get paid on top of investor payouts. Broadly, these are a way to retain the team and should be negotiated like executive compensation for your business unit Now...what happened with Pepsi Co acquisition of Poppi? Incumbents like buying high growth competition to (a) buy ideas that are working and (b) kill competition. Here for whatever reason Poppi did not grow as much as they projected and the probability of earn outs being paid decreased. Why? Could be a lot of reasons: changing priorities, market changes, or maybe something nefarious. I honestly can't commit and neither can the rest of the internet. How should founders price payouts? Simple, what is the Expected Value? EV = dollar value multiplied times probability of likelihood of getting paid Example: $100M CVR if revenue hits $1B in 2027 multiplied by probability of hitting the revenue number. Is it 50% (100m x 50% = $50M) or 10% (100m x 10% = $10m). Most companies are horrible at predicting revenue so you rarely a 50% likihood so proceeed with caution. For cash at close, this is simple math with increasing probability as you negotiate final terms near closing date. For CVRs and earn outs, it's critical for founders and their advisors to discount with realistic probability. Hope this helps!

Relayzero recommends: Pause, Disclose, & Create an Open Bidding Process for Stargate. With multiple bidders emerging, the DAO must maximize transparency and competition. This is your deal to decide.

It's official. Our first ever bidding war in crypto M&A. Wormhole ($W). submits a $120M all cash ($USDC) bid for Stargate ($STG). This is $10M (60%) higher Enterprise Value (EV) than LayerZero's ($25M vs $15M) - almost double the multiple on revenue (12x vs 7.2x).

Relayzero's M&A analysis reflecting a 7.2x revenue multiple for the enterprise valuation for Stargate (STG) is now live. Bidding war LayerZero (ZRO) and Wormhole (W) Here's a glimpse.