How were the fair values of intangible assets acquired by The Standardx estimated?
The_Standardx Franchise · 2025 FDDAnswer from 2025 FDD Document
Our condensed consolidated balance sheets at both March 31, 2025 and December 31, 2024 reflect preliminary estimates of the fair value of the assets acquired and liabilities assumed 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. The fair values of performance guarantee liabilities assumed were estimated using Monte Carlo simulations to model the probability of possible outcomes (see Note 12). The valuation methodology includes assumptions and judgments regarding discount rates, volatility, and hotel operating results, which are primarily Level Three assumptions. The remaining assets and liabilities were recorded at their carrying values, which approximate their fair values.
During the three months ended March 31, 2025, the fair values of certain assets acquired and liabilities assumed were revised. The measurement period adjustments primarily resulted from the refinement of certain assumptions, including contract terms, renewal periods, and useful lives, which affected the underlying cash flows in the valuation, and were based on facts and circumstances that existed at the acquisition date. Measurement period adjustments recorded on our condensed consolidated balance sheet at March 31, 2025 include a $41 million decrease in intangibles, net with a corresponding increase in goodwill. During the three months ended March 31, 2025, we recognized an insignificant reduction of amortization expense on our condensed consolidated statements of income for the amount that would have not been recognized during the year ended December 31, 2024, if the measurement period adjustments would have been made as of the acquisition date.
We will continue to evaluate the contracts acquired and the underlying inputs and assumptions used in our valuation of assets acquired and liabilities assumed. Accordingly, these estimates, along with any related tax impacts, are subject to change during the measurement period, which is up to one year from the date of acquisition.
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 values of intangible assets acquired by The Standardx were estimated using either discounted future cash flow models or the relief from royalty method. Both methods include revenue projections based on the expected contract terms and long-term growth rates. These projections are considered primarily Level Three assumptions, which involve significant unobservable inputs. These intangible assets are related to acquisitions, including management, franchise, and license agreements for operating and future hotels, as well as affiliated trade names.
The valuation methodology incorporates assumptions and judgments regarding discount rates, volatility, and hotel operating results, which are also classified as Level Three assumptions. These estimates are preliminary and based on available information as of the acquisition date. The document indicates that these values are subject to change during a measurement period of up to one year from the acquisition date, as The Standardx continues to evaluate the acquired contracts and underlying inputs.
For prospective franchisees, this means that the financial statements presented in the FDD involve estimates that could be revised. These revisions could impact the reported value of intangible assets and goodwill. The FDD notes that during the three months ended March 31, 2025, there was a $41 million decrease in intangibles, net, with a corresponding increase in goodwill due to refinement of certain assumptions such as contract terms and useful lives. This highlights the inherent uncertainty in these valuations and the potential for significant adjustments. Franchisees should be aware that these accounting adjustments do not impact the actual cash flow of the business, but they can impact the financial ratios and metrics used to evaluate the company's performance.