Explanation

Item 20 data shows that the franchise system is mature and large, with over 1,600 units, and is not experiencing unusually rapid growth. The franchisor appears to have the infrastructure and experience, as detailed in Items 1 and 2, to support its current size. Therefore, the specific risks associated with a franchisor's support systems being overwhelmed by excessively rapid expansion were not identified.

Potential Mitigations

• A business advisor can help you assess if the franchisor's support infrastructure is adequate for the current system size.
• Engaging with current franchisees to inquire about the quality and timeliness of franchisor support is a valuable step.
• Your accountant can review the financials in Item 21 to evaluate the franchisor's investment in support services relative to its size.

Explanation

Choice Hotels International, Inc. (Choice) is a long-established and very large franchisor, founded in 1939, with extensive experience in the hotel industry and franchising multiple brands. Item 20 shows a large, mature system with over 1,600 outlets. The risks associated with an unproven business model or an inexperienced, startup franchisor are not present in this FDD.

Potential Mitigations

• A business advisor can help you evaluate the franchisor’s long history and current market position.
• Speaking with long-term franchisees can provide insight into the evolution and stability of the franchisor's business model.
• An accountant can review the financial statements in Item 21 to confirm the financial maturity of the company.

Explanation

The business is in the hotel and lodging industry, which is a mature and well-established sector, not a new or trendy one. Choice Hotels International, Inc. (Choice) has been operating since 1939. This longevity provides evidence of sustained consumer demand and adaptability. Therefore, the risk that the business is a fad with limited long-term viability was not identified.

Potential Mitigations

• A business advisor can help you analyze the long-term trends and competitive landscape of the hotel industry.
• It is prudent to review market studies and industry reports to understand the future outlook for the specific hotel segment you are entering.
• Discussing the brand's adaptability and history with long-term franchisees can provide valuable context.

Explanation

Item 2 discloses that the management team of Choice Hotels International, Inc. (Choice) consists of executives with extensive experience in the hospitality and franchise industries. Many key personnel have been with the company or in similar senior roles for numerous years. The risks associated with an inexperienced management team that lacks a track record in franchising or the specific industry are not present.

Potential Mitigations

• A business advisor can help you review the backgrounds of the key executives listed in Item 2.
• Engaging with existing franchisees can provide valuable insight into their direct experiences with the franchisor's management team.
• It is wise to research the public reputation and past performance of the senior leadership team.

Explanation

The FDD does not indicate that the franchisor, Choice Hotels International, Inc. (Choice), is owned by a private equity firm. It is a publicly traded company. Therefore, the specific risks often associated with private equity ownership, such as a focus on short-term returns over long-term system health, were not identified in this context.

Potential Mitigations

• Understanding the ownership structure of the franchisor is crucial, which your attorney can help verify through public records.
• A financial advisor can help you analyze the priorities and strategies of a publicly traded company versus a PE-owned one.
• Speaking with current franchisees can provide insight into how the franchisor's ownership structure impacts operational decisions.

Explanation

The FDD discloses the franchisor, Choice Hotels International, Inc. (Choice), and its affiliates. The franchisor itself is a large, publicly traded entity, and its audited financial statements are provided in Item 21 and Exhibit C. There is no indication of a thinly capitalized subsidiary structure where a parent company's financials are necessary for a full risk assessment but have been omitted.

Potential Mitigations

• An attorney should review the corporate structure described in Item 1 to confirm relationships between the franchisor and any parent or affiliate entities.
• It is wise to have an accountant confirm that the provided financial statements are sufficient for assessing the entity you are contracting with.
• Understanding any guarantees provided by parent companies is important; your attorney can analyze any such documents in the exhibits.

Explanation

Choice Hotels International, Inc. (Choice) has a long operating history and discloses its recent major acquisition of the Radisson brands. Information about this transaction and the integration of the predecessor company appears throughout the FDD and financial statements. The risk of an undisclosed or poorly documented predecessor history is not identified.

Potential Mitigations

• Your attorney can review the predecessor information in Item 1 and the acquisition details in the financial statement footnotes.
• A business advisor can help you research the history of the franchisor and its acquired brands for a complete picture.
• Talking to franchisees who were part of an acquired system can provide valuable insight into the transition and ongoing support.