How did The Standardx account for the Bahia Principe transaction, and why?
The_Standardx Franchise · 2025 FDDAnswer from 2025 FDD Document
ahia Principe Transaction (see Note 4) for €419 million of base consideration, subject to customary adjustments related to working capital, cash, and indebtedness, and including €60 million of deferred consideration payable at future dates. We may pay additional variable contingent consideration through 2034 primarily related to the achievement of certain milestones for the development of additional hotels to be managed by the joint venture. The contingent consideration is payable at each hotel opening and is based on a multiple of stabilized base and incentive management fee revenues, and therefore, we are unable to reasonably estimate our maximum potential future consideration.
We closed on the transaction on December 27, 2024, paid cash of €359 million (approximately $374 million) and accounted for the transaction as a business combination as we are the primary beneficiary of the VIE (see Note 4). Upon acquisition, we recorded a $58 million deferred consideration liability at fair value, of which $20 million is recorded in accrued expenses and other current liabilities and $38 million is recorded in other long-term liabilities on our consolidated balance sheet. The fair value was estimated using a discounted future cash flow model and includes assumptions and judgments regarding the discount rate, which is primarily a Level Three assumption. We also recorded a $33 million contingent consideration liability at fair value in other long-term liabilities on our consolidated balance sheet. The fair value was estimated using a discounted future cash flow model and includes assumptions and judgments regarding the discount rate, estimated probability of achieving the hotel development milestones, and expected amount and timing of payments, which are primarily Level Three assumptions. Total purchase consideration was determined as follows:
| Management and hotel services agreement and franchise agreement intangibles | $ 906 $ (248) $ 658 | |---|---| | Brand and other indefinite-lived intangibles 608 — 608 | | | Customer relationships intangibles | 620 (243) 377 | | Other intangibles 33 (6) 27 | | | Total $ 2,167 $ (497) $ 1,670 | | The acquisition includes management and hotel services agreements for operating hotels and the Bahia Principe trade name. In addition, the acquisition contemplates the future management of undeveloped Bahia Principe Hotels & Resortsbranded properties. For the period from the acquisition date through December 31, 2024, total revenues and net income attributable to Bahia Principe were insignificant.
Our consolidated balance sheet at December 31, 2024 reflects preliminary estimates of the fair value of the assets acquired, liabilities assumed, and noncontrolling interest in the entity based on available information as of the acquisition date. The fair values of intangible assets acquired were estimated using either discounted future cash flow models or the relief from royalty method, both of which include revenue projections based on the expected contract terms and long-term growth rates, which are primarily Level Three assumptions.
Source: Item 23 — Receipts (FDD pages 85–132)
What This Means (2025 FDD)
According to The Standardx's 2025 Franchise Disclosure Document, the company completed the Bahia Principe Transaction during the year ended December 31, 2024, for €419 million of base consideration, subject to customary adjustments. This included €60 million of deferred consideration payable at future dates. The Standardx accounted for this transaction as a business combination because it is the primary beneficiary of the VIE (Variable Interest Entity). The company paid cash of €359 million (approximately $374 million) upon closing the transaction on December 27, 2024.
Upon acquiring Bahia Principe, The Standardx recorded a $58 million deferred consideration liability at fair value, with $20 million in accrued expenses and other current liabilities, and $38 million in other long-term liabilities on its consolidated balance sheet. Additionally, a $33 million contingent consideration liability at fair value was recorded in other long-term liabilities. These fair values were estimated using discounted future cash flow models, incorporating assumptions and judgments regarding discount rates. The contingent consideration may involve additional variable payments through 2034, contingent on achieving certain milestones for developing additional hotels managed by the joint venture.
The acquisition includes management and hotel services agreements for operating hotels and the Bahia Principe trade name. The Standardx will also manage undeveloped Bahia Principe Hotels & Resorts-branded properties in the future. For the period from the acquisition date through December 31, 2024, total revenues and net income attributable to Bahia Principe were insignificant. The consolidated balance sheet at December 31, 2024, reflects preliminary estimates of the fair value of the assets acquired, liabilities assumed, and noncontrolling interest in the entity based on available information as of the acquisition date. The fair values of intangible assets acquired were estimated using either discounted future cash flow models or the relief from royalty method, both of which include revenue projections based on the expected contract terms and long-term growth rates, which are primarily Level Three assumptions.
For a prospective franchisee, this accounting treatment indicates that The Standardx views the Bahia Principe acquisition as a strategic business combination that will expand its all-inclusive resort offerings. The use of fair value estimates and discounted cash flow models, especially those classified as Level Three, suggests that there are inherent uncertainties and judgments involved in valuing the acquired assets and liabilities. These valuations are subject to change during the measurement period, which is up to one year from the acquisition date, meaning that the initial estimates could be adjusted as more information becomes available. The contingent consideration structure also implies that The Standardx's future payments are tied to the performance and development of Bahia Principe properties, aligning the interests of both parties in the success of the venture.