Explanation

Analysis of the Item 20 tables for the last three years (2022-2024) does not indicate an unusually high rate of franchisee turnover. The combined rate of terminations and other cessations appears to be in a low single-digit percentage range annually, relative to the system size. While any closure is a concern, the numbers do not suggest a systemic problem based on the data provided. This specific risk appears low.

Potential Mitigations

• A business advisor should still recommend contacting a range of current and former franchisees from the lists in Exhibit 5 to discuss their experiences and reasons for leaving.
• Your accountant can help you analyze the Item 20 data for any specific trends within certain states or franchisee cohorts.
• Discuss with your attorney the importance of understanding the precise reasons listed for any franchise cessations (e.g., 'Termination' vs 'Ceased Operations').

Explanation

This risk was not identified in the FDD package. Pirtek was formed in 1997 and has a long operating history with a substantial number of franchisees, as detailed in Items 1 and 20. The risk of an unproven system is typically associated with new franchisors that lack an established track record, brand recognition, and developed support systems. Pirtek appears to be a mature and established franchise system.

Potential Mitigations

• A business advisor can help you investigate the brand's reputation and long-term viability within its specific industry.
• It is still prudent to have your attorney review the franchisor's history as disclosed in the FDD.
• Discuss the system's history and evolution with long-term franchisees to understand its stability over time.

Explanation

This risk was not identified in the FDD package. The business of providing industrial and hydraulic hose repair and replacement services caters to a fundamental and ongoing need in many sectors like construction, manufacturing, and transport. While subject to economic cycles, this is not a business model based on a fleeting trend or novelty. Therefore, the risk of it being a fad business appears low.

Potential Mitigations

• Engaging a business advisor to research the long-term demand for hydraulic services in your local market is a valuable step.
• Discuss the stability and cyclical nature of the business with existing franchisees.
• Your financial advisor can help you assess the business model's resilience to economic downturns.

Explanation

This risk was not identified in the FDD package. Item 2 shows that the key personnel of Pirtek have extensive experience within the company and in the franchising industry. For example, the CEO has been with the company since 2016 in various financial and executive roles, and the Franchise Training Manager has over 20 years of experience with the company. This suggests a stable and knowledgeable management team, which is a positive factor.

Potential Mitigations

• A business advisor can still assist you in researching the professional backgrounds of the key executives.
• When speaking with current franchisees, it is useful to ask about their direct experiences with the management team's competence and support.
• Consulting with your attorney to confirm the experience listed aligns with any public records can provide additional assurance.

Explanation

This risk was not identified in the FDD package. Pirtek discloses its parent company, Pirtek Holdco, LLC, in Item 1. However, since the parent company does not appear to guarantee Pirtek's performance and Pirtek itself provides audited financial statements, the parent's financials are not required and their absence is not a risk. The provided financials for Pirtek USA LLC appear to be the relevant documents for assessing financial health.

Potential Mitigations

• An accountant should confirm that the financial statements provided are for the correct legal entity offering the franchise.
• It is wise to have your attorney review Item 1 to understand the full corporate structure and the roles of any parent or affiliate companies.
• Clarify with your business advisor whether any parent or affiliate provides critical services that are not financially guaranteed.

Explanation

This risk was not identified in the FDD package. In Item 1, Pirtek states that it does not have any predecessors that are required to be disclosed. Accordingly, there is no predecessor history of litigation or bankruptcy to evaluate. The risk associated with an undisclosed or problematic predecessor history does not appear to be present.

Potential Mitigations

• Your attorney should still verify the information in Item 1 and confirm the absence of any undisclosed predecessors.
• A business advisor can help you research the company's long-term history through public records for a more complete picture.
• When speaking with long-tenured franchisees, you can inquire about the company's history and any previous ownership structures.

Explanation

This risk was not identified in the FDD package. Item 3 states, "No litigation is required to be disclosed in this Item." This indicates there is no current, material legal action involving the franchisor that alleges fraud, violates franchise law, or would be otherwise significant to a prospective franchisee. The absence of such disclosed litigation is a positive indicator.

Potential Mitigations

• Your attorney can conduct an independent public records search to verify the absence of significant litigation.
• When speaking with current and former franchisees, it is still prudent to ask about any past or present legal disputes they are aware of.
• A business advisor can help you check online forums and franchisee association websites for discussions of potential legal issues.