Explanation

The audited financial statements for TMC Franchise Corporation (TMC) show it is a profitable entity with a positive net worth. It is a subsidiary of the large, publicly-traded Canadian company, Alimentation Couche-Tard Inc. While the immediate franchisor appears financially sound, the system's high franchisee turnover rate, disclosed in Item 20, presents a more significant risk to your potential success than the franchisor's own financial stability.

Potential Mitigations

• Your accountant should review the audited financial statements in Exhibit B, including all footnotes, to assess the company's financial health and reliance on franchisee fees.
• Discuss the complex corporate structure and the role of the ultimate parent company, Alimentation Couche-Tard Inc., with your business advisor.
• It is wise to have your attorney evaluate any financial performance guarantees from parent entities, if they are offered.

Explanation

This risk was not identified. The franchisor, TMC, and its parent companies have been operating convenience stores since 1951 and have been franchising since 1995, indicating a long operational history. However, investing in any franchise carries risk, and the viability of the business model should always be carefully evaluated, especially in the context of high franchisee turnover as seen in Item 20 of this FDD.

Potential Mitigations

• A business advisor can help you research the brand's history and its competitive position in the current market.
• Your accountant should assist in developing a detailed business plan to assess the long-term viability of the franchise for your specific location.
• Discussing the evolution of the business model with long-term franchisees can provide valuable insight.

Explanation

This risk was not identified. The convenience store industry is a well-established sector, not a temporary trend. However, any business model's long-term success depends on its ability to adapt to changing consumer preferences and economic conditions. Your success will depend on management skills and market factors, not on the business being a fad.

Potential Mitigations

• It is prudent to have a business advisor help you analyze the long-term consumer demand for convenience store products and services in your area.
• Your business plan, developed with an accountant, should consider how you will adapt to local competition and evolving customer needs.
• Speaking with long-term franchisees about how the business has changed over the years can provide valuable perspective.

Explanation

This risk was not identified in the FDD. Item 2 shows that the key personnel of TMC and its parent, Circle K Stores Inc., have extensive and long-term experience in the convenience store and franchising industries. Many executives have been with the company or in relevant roles for several years. This level of experience is generally a positive factor for a franchise system.

Potential Mitigations

• Even with an experienced team, it is beneficial to speak with current franchisees about the quality and effectiveness of the management and support teams.
• A business advisor can help you research the public reputation and track record of the key executives listed in Item 2.
• Understanding the franchisor's strategic vision during discovery day can provide insight into the management's direction for the company.

Explanation

This risk was not identified. The ultimate parent company, Alimentation Couche-Tard Inc., is a publicly-traded corporation, not a private equity firm. Public companies have different reporting requirements and investment horizons than typical private equity funds, which may influence their strategic decisions differently. However, all large corporations are focused on shareholder returns, which can still affect franchisee relationships.

Potential Mitigations

• Your business advisor can help you research the corporate history and ownership structure of the franchisor and its parent companies.
• It is wise to ask current franchisees if they have experienced any significant changes in franchisor policy or support related to ownership structure.
• An attorney can explain the rights the franchisor has to sell or assign the franchise system to a new owner, which could include a private equity firm in the future.

Explanation

This risk was not identified. The FDD clearly discloses the parent company structure, with TMC being a subsidiary of Circle K Stores Inc., which is ultimately controlled by Alimentation Couche-Tard Inc. The financial statements for the franchisor, TMC, are provided and audited. While the parent's financials are not included, the franchisor's financials appear sufficiently capitalized on their own, making the absence of the parent's statements a lower risk in this context.

Potential Mitigations

• Your accountant should review the provided franchisor financials to confirm its standalone financial health.
• It is prudent to have your attorney review the corporate structure described in Item 1 to understand the relationships between the various entities.
• A business advisor can help you research the public information available on the ultimate parent company, Alimentation Couche-Tard Inc.

Explanation

This risk was not identified. The FDD in Item 1 identifies several predecessors and affiliates resulting from various acquisitions, such as On the Run, Kangaroo Express, and Holiday Stationstores. Item 3, Litigation, also includes cases that may have originated with these other entities. The disclosure appears comprehensive, providing a reasonable picture of the company's history and inherited legal issues.

Potential Mitigations

• A franchise attorney should review the information on predecessors and affiliates in Items 1 and 3 to ensure the disclosure appears complete.
• A business advisor can help you research the history of the various brands now under the Circle K umbrella.
• When speaking with long-term franchisees, asking about their experience under any previous brand ownership can provide valuable context.