In an asset acquisition, how does Embassy Suites By Hilton allocate the cost of the acquisition?
Embassy_Suites_By_Hilton Franchise · 2025 FDDAnswer from 2025 FDD Document
Considerable judgment is necessary to interpret market data and develop the estimated fair values and the classification within the valuation hierarchy. We have not elected the fair value measurement option for any of our financial assets or liabilities.
Acquisitions
We make certain judgments to determine whether a transaction should be accounted for as a business combination or an asset acquisition. These judgments include the assessment of the inputs, processes and outputs associated with an acquired set of activities and whether the fair value of total assets acquired is concentrated to a single identifiable asset or group of similar assets. We account for a transaction as a business combination when the assets acquired include inputs and one or more substantive processes that, together, significantly 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
Source: Item 21 — FINANCIAL STATEMENTS (FDD page 97)
What This Means (2025 FDD)
According to Embassy Suites By Hilton's 2025 Franchise Disclosure Document, the brand makes judgments to determine whether a transaction should be accounted for as a business combination or an asset acquisition. These judgments include assessing the inputs, processes, and outputs associated with an acquired set of activities and whether the fair value of total assets acquired is concentrated to a single identifiable asset or group of similar assets. Embassy Suites By Hilton accounts for a transaction as a business combination when the assets acquired include inputs and one or more substantive processes that, together, significantly 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, Embassy Suites By Hilton accounts for the transaction as an asset acquisition.
For acquisitions that do not meet the definition of a business combination, Embassy Suites By Hilton accounts for them as asset acquisitions. The cost of the acquisition, including direct and incremental transaction costs, is allocated to the individual assets acquired and liabilities assumed based on their relative fair values. Notably, Embassy Suites By Hilton does not recognize any goodwill in an asset acquisition.
In May 2024, Embassy Suites By Hilton completed the acquisition of Graduate franchise contracts as part of Hilton's larger acquisition of the Graduate brand, accounting for the transaction as an asset acquisition. As a result, Embassy Suites By Hilton recorded franchise contract intangible assets at their cost of approximately $85 million. These intangible assets are amortized over an estimated useful life of 15 years, with the expense recognized in the statements of comprehensive income and member's equity. The Graduate franchise contracts' activity, which did not have a material impact on operating results for the year ended December 31, 2024, was included in the financial statements for the period from the acquisition date to December 31, 2024.