How did The Standardx estimate the fair value of the deferred consideration liability?
The_Standardx Franchise · 2025 FDDAnswer from 2025 FDD Document
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 was recorded in accrued expenses and other current liabilities and $38 million was recorded in other long-term liabilities on our condensed 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 condensed 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:
Source: Item 1 — Financial Statements. (FDD pages 156–187)
What This Means (2025 FDD)
According to The Standardx's 2025 Franchise Disclosure Document, the fair value of the deferred consideration liability was estimated using a discounted future cash flow model. This model incorporates assumptions and judgments regarding the discount rate, which is classified as a Level Three assumption. Upon the acquisition on December 27, 2024, The Standardx recorded a $58 million deferred consideration liability at fair value. Of this amount, $20 million was recorded in accrued expenses and other current liabilities, while $38 million was recorded in other long-term liabilities on their condensed consolidated balance sheet.
In addition to the deferred consideration, The Standardx also recorded a $33 million contingent consideration liability at fair value in other long-term liabilities. This fair value was also estimated using a discounted future cash flow model. The estimation included assumptions and judgments regarding the discount rate, the estimated probability of achieving hotel development milestones, and the expected amount and timing of payments. These assumptions are also primarily classified as Level Three assumptions.
For a prospective franchisee, understanding how The Standardx values these liabilities is crucial because it reflects the financial strategies and risk assessments of the company. The use of Level Three assumptions indicates that these valuations rely heavily on internal data and subjective assessments, which could be subject to change and affect the company's financial position. The total purchase consideration, which includes the fair value of both deferred and contingent considerations, provides insight into the overall cost and financial structuring of The Standardx's acquisitions.