How does Embassy Suites account for acquisitions that do not meet the definition of a business combination?
Embassy_Suites Franchise · 2025 FDDAnswer from 2025 FDD Document
cantly contribute to the ability to create outputs and substantially all of the total fair value of the assets acquired is not concentrated to a single identifiable asset or group of similar assets. Otherwise, we account for the transaction as an asset acquisition.
Acquisitions that do not meet the definition of a business combination are accounted for as asset acquisitions. We allocate the cost of the acquisition, including direct and incremental transaction costs, to the individual assets acquired and liabilities assumed based on their relative fair values. We do not recognize any goodwill in an asset acquisition.
Note 3: Acquisition
In May 2024, we completed the acquisition of Graduate franchise contracts, as part of the larger Hilton acquisition of the Graduate brand, and accounted for the transaction as an asset acquisition. As a result, we recorded franchise contract intangible assets at their cost of approximately $85 million. The franchise contract intangible assets will be amortized over an estimated useful life of 15 years to depreciation and amortization expenses in our statements of comprehensive income and member's equity.
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites's 2025 Franchise Disclosure Document, acquisitions that do not meet the definition of a business combination are treated as asset acquisitions. In these instances, Embassy Suites allocates the cost of the acquisition to the individual assets acquired and liabilities assumed based on their relative fair values. This allocation includes both direct and incremental transaction costs. A key difference from business combinations is that Embassy Suites does not recognize any goodwill in an asset acquisition.
For example, in May 2024, Embassy Suites completed the acquisition of Graduate franchise contracts as part of Hilton's larger acquisition of the Graduate brand. This transaction was accounted for as an asset acquisition, resulting in the recording of franchise contract intangible assets at a cost of approximately $85 million. These intangible assets are then amortized over an estimated useful life of 15 years, with the expense recognized in the statements of comprehensive income and member's equity.
This accounting treatment means that prospective Embassy Suites franchisees should be aware that the costs associated with acquiring assets that do not qualify as a business combination are directly allocated to the identifiable assets and liabilities. The absence of goodwill recognition in these transactions can affect the overall financial reporting and asset valuation. Understanding these accounting practices is crucial for franchisees to accurately interpret Embassy Suites's financial statements and assess the financial implications of such acquisitions.