Explanation

The franchisor, Holiday Hospitality Franchising, LLC (Holiday), and its parent guarantor, Six Continents Hotels, Inc., both appear to be in strong financial condition. The provided audited financial statements for 2022, 2023, and 2024 show significant assets and positive net worth for both entities. This strong financial backing suggests a reduced risk that the franchisor will be unable to meet its support obligations or invest in the brand's long-term health.

Potential Mitigations

• Your accountant should review the provided audited financial statements, including all footnotes and the auditor's opinion, to confirm this assessment of financial stability.
• It is prudent to discuss the financial relationship between Holiday and its parent companies with your business advisor to understand the full corporate structure.
• Even with strong financials, an accountant can help you create a budget that accounts for potential changes in the franchisor's financial health over the long term.

Explanation

Item 20 data indicates a large and growing system. While growth itself is not a risk, rapid expansion can sometimes strain a franchisor's ability to provide adequate and timely support, training, and site selection assistance to all franchisees. You should verify that the franchisor's support infrastructure, as described in Item 11, has scaled appropriately with its growth in the number of franchised outlets.

Potential Mitigations

• Inquiring with newer franchisees about their onboarding experience and the quality of support they received can provide valuable insight.
• Your business advisor can help you question the franchisor about their specific plans for scaling support services to match system growth.
• A review of the franchisor's support staff and training resources described in Item 11 should be conducted with your business advisor.

Explanation

This specific risk was not identified in the FDD Package. The franchisor and its parent, InterContinental Hotels Group (IHG), are long-established and highly experienced in both the hotel industry and franchising. The system has a long operational history and extensive brand recognition. A new or unproven system would carry higher risks related to the viability of the business model and the adequacy of franchisor support.

Potential Mitigations

• A business advisor can help you assess the franchisor's history and brand maturity relative to its competitors.
• Even with an established brand, consulting with your accountant to review financial statements is crucial for understanding its current health.
• Your attorney can review the business experience of the key executives listed in Item 2.

Explanation

This risk was not identified in the FDD Package. The Crowne Plaza brand and the broader lodging industry in which it operates have demonstrated long-term consumer demand. This is not a business concept tied to a new or fleeting trend. However, any business faces risks from changing consumer preferences and economic conditions, which could affect long-term viability if the brand fails to adapt.

Potential Mitigations

• Engaging a business advisor to research long-term trends in the upscale hotel market is a prudent step.
• It is wise to review the franchisor's history of innovation and brand adaptation with a marketing professional.
• Your financial advisor can help you model different economic scenarios to test the resilience of the business.

Explanation

This specific risk was not identified in the FDD Package. The executive team detailed in Item 2 possesses extensive and long-term experience within the hospitality industry and with the franchisor, InterContinental Hotels Group (IHG), itself. Lack of management experience in franchising or the specific industry can be a significant risk, potentially leading to inadequate franchisee support and poor strategic decisions.

Potential Mitigations

• A business advisor can help you research the professional backgrounds of the key executives listed in Item 2.
• It is always wise to discuss the quality and responsiveness of management support with current franchisees.
• Seeking legal counsel to review any management changes that may have occurred since the FDD was issued is advisable.

Explanation

This risk was not identified in the FDD Package. The ultimate parent company, InterContinental Hotels Group PLC, is a publicly traded company, not a private equity firm. Private equity ownership can sometimes introduce risks related to short-term profit motives over the long-term health of the brand, potentially leading to increased fees, reduced support, or a quick resale of the franchise system.

Potential Mitigations

• A business advisor can help you understand the ownership structure of any franchise system you consider.
• Your attorney should always review the franchisor's rights to assign the franchise agreement, regardless of ownership type.
• Investigating the ownership structure and its potential impact on franchisees is a key part of due diligence; your accountant can assist.

Explanation

This risk was not identified in the FDD Package. The franchisor is a subsidiary of Six Continents Hotels, Inc. (SCH), which is part of the larger InterContinental Hotels Group (IHG). The FDD appropriately discloses these parent companies in Item 1 and provides audited financial statements for the parent guarantor, SCH, in Exhibit F-2. This transparency allows for a more complete assessment of the entire corporate structure's financial health.

Potential Mitigations

• An accountant should review the financial statements of both the franchisor and any parent guarantor to assess the overall financial strength.
• Your attorney can help you understand the legal relationship and obligations between the franchisor and its parent entities.
• Discussing the corporate structure with your business advisor helps clarify where ultimate control and decision-making authority reside.

Explanation

This risk was not identified in the FDD Package. Item 1 states that Holiday Hospitality Franchising, LLC has had no predecessor in the ten-year period before the disclosure date. The document provides a detailed history of the franchisor and its affiliates. In cases where a franchisor has acquired a system from a predecessor, it's important to investigate the predecessor's history for issues like litigation or high franchisee turnover.

Potential Mitigations

• Your attorney should always verify the predecessor information in Item 1 of any FDD.
• If a predecessor is disclosed, a business advisor can help you research its historical performance and reputation.
• Speaking with long-term franchisees who operated under a predecessor can provide valuable insights.