Explanation

The financial statements for Holiday Hospitality Franchising, LLC (HHFL) and its parent, Six Continents Hotels, Inc., appear strong. Both entities report significant positive equity and consistent profitability. The franchisor's financial statements do not include a 'going concern' note or other significant qualifications from the auditor. Based on the provided financials, the risk of franchisor instability from a financial perspective appears to be low at this time.

Potential Mitigations

• An accountant should review the franchisor's and parent company's financial statements, including all footnotes, to confirm their financial health.
• It is advisable to discuss the franchisor's capitalization and debt structure with your financial advisor to assess its long-term stability.
• Your attorney can help you understand the implications of any financial guarantees provided by the parent company.

Explanation

Item 20 data indicates the franchise system is in its infancy, growing from zero to two units over the past three years. While this is not rapid growth in absolute terms, any growth from a zero base can strain a new system's resources. The franchisor's ability to provide adequate support as it continues to add new hotels is a key consideration, though it is backed by the extensive infrastructure of its parent company, IHG.

Potential Mitigations

• With your business advisor, carefully question the franchisor about their specific plans and resources allocated for supporting new franchisees as the system expands.
• You should discuss the quality and responsiveness of current franchisor support with the two existing franchisees.
• An accountant's review of the franchisor's financials in Item 21 can help assess if they are reinvesting in support infrastructure.

Explanation

The management team listed in Item 2 consists of executives from the parent company, InterContinental Hotels Group (IHG). These individuals have extensive, long-term experience in the global hotel industry and in managing IHG's large portfolio of franchise systems. While Vignette Collection itself is a new brand, the leadership behind it is highly experienced in both the relevant industry and in franchising, which mitigates the risk typically associated with inexperienced management.

Potential Mitigations

• A business advisor can help you assess how the parent company's vast experience might translate to support for this new, smaller brand.
• You should confirm with the franchisor which specific teams and individuals will be providing direct support for your hotel.
• Your attorney can review the support obligations in the License Agreement to ensure they are clearly defined.

Explanation

The franchisor, Holiday Hospitality Franchising, LLC (HHFL), is a subsidiary of Six Continents Hotels, Inc. (SCH), and ultimately InterContinental Hotels Group PLC (IHG). The FDD provides audited financial statements for both HHFL and its direct parent, SCH, which guarantees certain obligations. This level of disclosure appears to be comprehensive and provides a clear view of the financial health of the entities you will be contracting with, reducing the risk of hidden financial instability at the parent level.

Potential Mitigations

• An accountant should review the financial statements of both the franchisor and its parent guarantor to understand their interconnected financial relationship.
• Your attorney should analyze the parent company guarantee to determine the specific obligations it covers and its enforceability.
• It is prudent to discuss the overall corporate structure and potential risks with your business advisor.

Explanation

This FDD package does not indicate any predecessor history that would be a cause for concern. Item 1 does not list any predecessors from which HHFL acquired the Vignette Collection brand, as it appears to be a new concept developed within the InterContinental Hotels Group (IHG) system. Therefore, the risk of inheriting historical problems from a prior, unrelated entity is not present.

Potential Mitigations

• It is always good practice for your attorney to confirm the corporate history outlined in Item 1 through independent verification if possible.
• Understanding the history of the parent company, IHG, can provide context for how they launch and manage new brands; a business advisor can assist with this research.
• You should ask existing franchisees about their perception of the brand's origins and the support provided from its inception.