Explanation

Financial statements in Item 21 reveal G6 Hospitality Franchising LLC (G6 LLC) is profitable but is being systematically drained of cash. It paid over $160 million in distributions to its parent in three years, reducing cash from $36.4M to $6.2M. A recent acquisition by a new parent (OYO Hotels) and complete management turnover in December 2024 create significant uncertainty about future financial stability and the ability to support franchisees.

Potential Mitigations

• An experienced franchise accountant must thoroughly analyze the franchisor's financial statements, focusing on cash flow trends, related-party transactions, and the impact of the new ownership.
• Engaging a business advisor to research the new parent company, OYO Hotels, and its strategy for the Studio 6 brand is critical.
• Your attorney should review the FDD for any financial assurances, like performance bonds, that may be required by state regulators due to these financial conditions.

Explanation

The franchisor, G6 LLC, was acquired by OYO Hotels in December 2024, and the entire executive team listed in Item 2 is new as of that date. This represents a new, and in some respects unproven, management team for this system. While the Studio 6 brand has history, the new ownership and leadership create risks associated with new strategies, potential support changes, and a lack of a track record with this specific team.

Potential Mitigations

• A business advisor can help you conduct extensive due diligence on the new parent company, OYO Hotels, and the background of the new management team.
• It is critical to speak with existing franchisees about any changes in support or operations since the December 2024 acquisition.
• Your attorney should review for any additional protections you might negotiate to account for the risks associated with a new leadership team.

Explanation

Item 2 reveals the entire executive team at G6 LLC, including the CEO and heads of operations and finance, was newly appointed in December 2024 following the acquisition by OYO Hotels. While some executives have experience with the new parent company, they lack a track record of managing this specific G6 LLC franchise system. This complete, recent management turnover presents a significant risk regarding strategic direction, operational continuity, and franchisee support quality.

Potential Mitigations

• Engaging a business advisor to research the professional backgrounds and track records of the new executive team is a critical step.
• It is vital to speak with current franchisees to gauge their confidence in the new leadership and to learn about any changes since the takeover.
• Your attorney should be consulted to understand the implications of this management change on the franchisor's contractual obligations.

Explanation

G6 LLC was acquired by OYO Hotels in December 2024. OYO's parent company is Oravel Stays Limited, an Indian hospitality technology company. This ownership structure introduces risks common with institutional investors, where focus may be on maximizing returns, potentially through fee increases or support reductions. The Franchise Agreement allows G6 LLC to assign the agreement to a successor, meaning the system could be sold again, introducing further uncertainty.

Potential Mitigations

• Researching the business model and reputation of the new parent, OYO Hotels, with a business advisor is highly recommended.
• Your attorney should clarify the terms under which the franchise agreement can be assigned to another company.
• Discuss any changes in operational philosophy or support since the acquisition with current franchisees.

Explanation

The FDD discloses the parent company structure, culminating in Oravel Stays Limited in India. However, financial statements are only provided for the franchisor, G6 LLC, and not for the ultimate parent. While G6 LLC is profitable, it has been systematically transferring all its cash to its parent. Without the parent's financials, it is difficult to assess the overall financial health and stability of the entire organization that now controls your franchise.

Potential Mitigations

• Your accountant should analyze the provided financials with the understanding that they do not reflect the health of the ultimate parent company.
• Given the cash transfers, a business advisor should help you evaluate the risk that the franchisor entity is being treated as a cash source rather than a long-term business to be invested in.
• Your attorney can advise on whether state law might require parent financial disclosures under these circumstances.

Explanation

Item 3 discloses a history of significant litigation. This includes two lawsuits brought by franchisees alleging fraud and breach of contract, and two major actions (a class action and a government suit from the State of Washington) related to sharing guest data with immigration authorities, resulting in multi-million dollar settlements. This pattern suggests potential issues in franchisee relations and reveals a significant past operational and reputational problem that required substantial changes and financial payouts.

Potential Mitigations

• Your attorney must carefully review the details and outcomes of all litigation disclosed in Item 3 to assess the nature and severity of the risks.
• A business advisor can help you investigate the underlying issues that led to this litigation, particularly the privacy-related lawsuits.
• It is imperative to discuss these past issues with the franchisor and current franchisees to understand what changes have been implemented to prevent recurrence.