Explanation

The franchisor, Holiday Hospitality Franchising, LLC (Holiday), and its parent company, Six Continents Hotels, Inc., appear financially stable. The audited financial statements in Exhibits F1 and F2 show significant assets and consistent profitability. Holiday reported a net income of over $67 million for 2024. The parent company also demonstrates strong financial health. This suggests the franchisor has the resources to support the system and its obligations.

Potential Mitigations

• Your accountant should review the provided financial statements in detail, including all footnotes, to confirm this assessment of financial stability.
• Ask the franchisor about their plans for future investment in the brand, technology, and franchisee support systems.
• A business advisor can help you monitor the franchisor's financial health and market position on an ongoing basis.

Explanation

This risk was not identified. The franchisee turnover rate appears to be very low based on the data in Item 20, Table 3. For 2024, the total number of terminations and non-renewals was 25 out of a starting base of 2,304 outlets, which is approximately 1.1%. This low churn rate is a positive indicator and suggests a relatively stable and satisfied franchisee base within the system.

Potential Mitigations

• You should still contact a diverse group of current and former franchisees listed in Item 20 to discuss their satisfaction and experiences with the system.
• In discussions with the franchisor, you could inquire about the reasons for the few terminations and non-renewals that did occur.
• It is wise for your attorney to review the termination and renewal clauses in the franchise agreement to understand your rights and obligations.

Explanation

The franchise system is large and established, with over 2,300 licensed outlets in the U.S. Item 20 data shows steady net growth over the past three years, with 45 new hotels opened in 2024. This indicates a mature, stable system rather than one experiencing the kind of rapid, potentially unsupported growth that can strain franchisor resources. The franchisor appears to be managing its growth effectively.

Potential Mitigations

• Ask the franchisor about their development plans and how they ensure support infrastructure keeps pace with system growth.
• Speaking with franchisees who opened recently can provide insight into the quality of the current pre-opening and ongoing support.
• Your business advisor can help you evaluate the competitive landscape in your target market to ensure it can support another hotel.

Explanation

This risk was not identified. Holiday Hospitality Franchising, LLC and its parent, IHG, are highly experienced global operators in the hotel industry. Item 1 shows they and their predecessors have been licensing hotels since 1953. Item 20 indicates a large and stable system of over 2,300 licensed hotels. Item 21 financials show a well-established, profitable enterprise. The business model is proven and mature, not a new or untested concept.

Potential Mitigations

• You should still perform thorough due diligence by speaking with current and former franchisees about their experiences with the system and franchisor.
• A review of the management team's experience in Item 2 with your business advisor can confirm their extensive history in the industry.
• Have your accountant review the detailed financial statements to verify the franchisor's long-term stability.

Explanation

This risk appears low. The Holiday Inn Express brand is a major, long-standing participant in the midscale hotel sector, which serves a consistent need for business and leisure travel. The business model is not based on a new or fleeting trend. The franchisor's long history, large system size, and significant brand recognition suggest a sustainable business model rather than a fad.

Potential Mitigations

• Your business advisor can help you research long-term trends in the hotel industry to confirm the brand's continued relevance and market position.
• In discussions with current franchisees, inquire about their long-term outlook and the brand's ability to adapt to market changes.
• Review the franchisor's marketing strategies and system development plans with your financial advisor to assess their focus on long-term value.

Explanation

This risk was not identified. Item 2 lists the business experience of the franchisor's key executive officers. The management team is composed of individuals with extensive, long-term careers within IHG and other major hospitality companies like Hyatt. Their backgrounds demonstrate significant experience in franchising, hotel operations, development, and marketing. This level of experience is a positive factor for system stability and support.

Potential Mitigations

• You may still wish to conduct your own independent research on the key executives listed in Item 2 to supplement the information provided.
• When speaking with franchisees, ask about their direct experiences and the quality of support received from the management team.
• Your business advisor can help you assess how the management team's experience aligns with your own business goals.

Explanation

This risk is not present as Holiday and its parent IHG are public companies (InterContinental Hotels Group PLC), not owned by a private equity firm. The motivations are generally aligned with long-term public shareholder value rather than the shorter-term exit strategies often associated with private equity ownership. However, you should be aware the franchisor retains the right to assign the franchise agreement.

Potential Mitigations

• It is always prudent to have your attorney review the assignment clause in the franchise agreement to understand the implications of a potential sale of the franchise system.
• You can research the franchisor's ownership structure and history with your business advisor to understand its governance.
• Monitoring the franchisor’s public filings and investor reports can provide insight into its strategic priorities.

Explanation

This risk was not identified. The FDD clearly discloses the parent company, Six Continents Hotels, Inc. (SCH), and provides its audited financial statements in Exhibit F2. Holiday also notes that SCH commits to perform certain post-sale obligations. This transparency allows for a full assessment of the financial health of both the franchisor entity and its direct parent, which appears to be strong and stable.

Potential Mitigations

• Your accountant should review the financial statements for both the franchisor (Holiday) and its parent (SCH) to get a complete picture of the system's financial health.
• Have your attorney examine the specific obligations the parent company guarantees or performs on behalf of the franchisor.
• When speaking to other franchisees, you can ask about their experience with the support provided by the parent company's departments.

Explanation

This risk was not identified. Item 1 clearly discloses the franchisor's history, including its origin as 'Holiday Inns Franchising, Inc.' and its relationship with its parent, Six Continents Hotels, Inc. The FDD does not indicate any undisclosed predecessors with negative histories. The litigation and bankruptcy history provided in Items 3 and 4 appears comprehensive for the disclosed entities. There are no signs of obscured or problematic predecessor history.

Potential Mitigations

• Your attorney should still review the corporate history in Item 1 to ensure a full understanding of the franchisor's lineage.
• In discussions with long-term franchisees, you can inquire about their experiences under any previous corporate structures.
• Confirm with your business advisor that there are no red flags associated with the franchisor's stated history.