Explanation

The franchisor, Holiday Hospitality Franchising, LLC (HHFL), and its parent company, Six Continents Hotels, Inc., both present audited financial statements that appear strong. For 2024, HHFL reports significant net income and positive member's equity. The parent company also shows substantial revenue and profitability. Based on these disclosures, the franchisor appears to be a financially stable entity capable of supporting the franchise system, which mitigates this particular risk.

Potential Mitigations

• An accountant should still review the complete financial statements, including all footnotes, to confirm financial health and identify any subtle risks.
• It is wise to discuss the financial relationship between HHFL and its parent companies with your business advisor to understand support structures.
• Legal counsel can help you understand any financial performance covenants or guarantees mentioned in the franchise agreement.

Explanation

This risk was not identified in the FDD package. Item 20 data does not show any terminations, non-renewals, or other cessations of franchised outlets for the past three years, instead indicating steady growth. High franchisee turnover is often a major red flag indicating potential systemic issues, such as a lack of profitability or poor franchisor support. The absence of such turnover in the data presented is a positive indicator for system stability.

Potential Mitigations

• A business advisor can help you analyze the growth data in Item 20 to understand the pace of expansion.
• It is still valuable to speak with current franchisees about their satisfaction and experiences within the system, which your attorney can help facilitate.
• An accountant can help you model future performance based on the provided Item 19 data and franchisee interviews.

Explanation

This risk was not identified. The FDD shows moderate and manageable growth for the EVEN Hotels brand (from 19 to 22 licensed outlets in 2024). Given that the franchisor is part of the large, well-resourced InterContinental Hotels Group (IHG), this rate of growth does not suggest that its support infrastructure would be strained. Rapid, unsupported expansion can otherwise lead to poor site selection, inadequate training, and diluted brand standards, which does not appear to be a concern here.

Potential Mitigations

• Asking existing franchisees about the quality and timeliness of franchisor support is a valuable step for your due diligence.
• A discussion with your business advisor can help evaluate the franchisor's capacity to manage its planned growth.
• Your accountant can review the franchisor's financials in Item 21 for evidence of investment in support infrastructure.

Explanation

This risk was not identified. The executives of the franchisor and its parent companies, as listed in Item 2, have extensive and long-term experience within the hospitality industry and with the InterContinental Hotels Group (IHG) system. Inexperienced management can be a significant risk, often leading to poor strategic decisions and inadequate franchisee support. The deep experience of the leadership team here is a strong mitigating factor against such risks.

Potential Mitigations

• A review of the executive team's specific brand experience with your business advisor can still provide valuable context.
• Speaking with current franchisees can confirm whether the management team's experience translates into effective support and leadership.
• Your attorney can help you understand the corporate structure outlined in Item 1 and how it relates to the management team.

Explanation

The ultimate parent company, InterContinental Hotels Group, is a publicly traded PLC, not a private equity firm. However, the business model involves a complex structure of parent companies and affiliates. The risk of decisions being driven by shareholder returns over franchisee health is inherent in any large public company, but it differs from the typical short-term exit strategy often associated with private equity ownership. The extensive history of the company provides a degree of stability.

Potential Mitigations

• A review of the parent company's public financial reports and investor calls with your financial advisor can provide insight into its strategic priorities.
• Speaking with franchisees about their perception of the balance between corporate and franchisee interests is valuable due diligence.
• Your attorney can help you understand the implications of the franchisor's broad right to sell or assign the franchise system.

Explanation

This risk was not identified. The franchisor, HHFL, clearly discloses its direct parent, Six Continents Hotels, Inc. (SCH), and its ultimate parent, InterContinental Hotels Group PLC. Furthermore, the FDD includes the audited financial statements for the direct parent, SCH, in Exhibit F-2, which acts as a guarantor for certain obligations. This level of transparency provides a clear view of the financial stability and structure of the entities supporting your franchise.

Potential Mitigations

• An accountant should review the provided parent company financials to assess the strength of any guarantees.
• It is prudent to discuss the operational relationship between the franchisor and its parent with your business advisor.
• Your attorney can confirm that the language of any parent guarantee is strong and enforceable.

Explanation

This risk was not identified in the FDD. Item 1 states that Holiday Hospitality Franchising, LLC has had no predecessor in the ten-year period prior to the FDD's issuance date. The document provides a detailed corporate history, but does not indicate that the current franchisor recently acquired the system from a different entity. Therefore, risks associated with an undisclosed or problematic predecessor history do not appear to be present.

Potential Mitigations

• A business advisor can help you research the history of the EVEN Hotels brand and the broader IHG group.
• Asking long-term IHG franchisees about the history and evolution of the company's brands can provide useful context.
• Your attorney can review the corporate history disclosed in Item 1 for any potential ambiguities.