How does Del Taco account for business combinations?
Del_Taco Franchise · 2025 FDDAnswer from 2025 FDD Document
, which allows us to not disclose the transaction price allocated to unsatisfied performance obligations when the transaction price is a sales-based royalty.
3. BUSINESS COMBINATION
On March 8, 2022 (the "Closing Date"), the Company acquired 100% of the outstanding equity interest of Del Taco for cash according to the terms and conditions of the Agreement and Plan of Merger, dated as of December 5, 2021 (the "Merger Agreement"). The acquisition of Del Taco has been accounted for using the acquisition method of accounting in accordance with ASC 805, Business Combinations, with the Company treated as the accounting acquirer, which requires, among other things, that the assets acquired, and liabilities assumed be recognized at their acquisition date fair value. Jack in the Box acquired Del Taco as a part of the Company's goal to gain greater scale and accelerate growth.
In connection with the transaction, the Company repaid Del Taco's existing debt of $115.2 million related to a syndicated credit facility and Del Taco entered into a new syndicated credit facility.
The total purchase consideration for Del Taco was $593.3 million. Each share of Del Taco common stock issued and outstanding was converted into the right to receive $12.51 in cash without interest, less any applicable withholding taxes ("Merger Consideration"). Additionally, in connection with the transaction, each Del Taco equity award granted under Del Taco's equity compensation plans was either (i) converted into the right to receive Merger Consideration or (ii) converted into equity awards with respect to Jack in the Box common stock.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 58)
What This Means (2025 FDD)
According to the 2025 FDD, Del Taco's parent company, Jack in the Box Inc., accounts for business combinations using the acquisition method of accounting, in accordance with ASC 805, Business Combinations. This means that when Jack in the Box acquired Del Taco on March 8, 2022, it recognized the assets acquired and liabilities assumed at their fair values on that date. The acquisition method is a standard accounting practice for business combinations, ensuring that the financial statements reflect the true economic substance of the transaction.
Specifically, the excess of the total consideration over the tangible assets, identifiable intangible assets, and assumed liabilities is recorded as goodwill. As a result of the Del Taco acquisition, Jack in the Box recorded goodwill of $319.7 million, primarily attributable to Del Taco's market position and future growth potential, including future store openings, expansion into new markets, and expected synergies. However, none of this goodwill is deductible for tax purposes. This accounting treatment affects how Del Taco's financial performance is integrated into Jack in the Box's consolidated financial statements.
In 2024, Del Taco purchased 10 franchise-operated restaurants for $86 thousand, recognizing gains of $2.7 million. These franchise acquisitions are also accounted for using the acquisition method, with purchase price allocations based on fair value estimates determined using significant unobservable inputs (Level 3). This consistent application of the acquisition method ensures uniformity in how Del Taco accounts for both major acquisitions and smaller franchise transactions. For a potential franchisee, understanding these accounting practices is crucial for interpreting Del Taco's financial statements and assessing the financial health and stability of the franchise system.