What is the relief from royalty method used for by The Standardx in the Bahia Principe acquisition?

According to The Standardx's 2025 Franchise Disclosure Document, the company used the relief from royalty method to estimate the fair values of intangible assets acquired in the Bahia Principe transaction. This method, along with discounted future cash flow models, relies on revenue projections based on expected contract terms and long-term growth rates. These projections are considered Level Three assumptions, indicating they involve significant judgment and are not based on readily observable market data.

In practical terms, The Standardx projects the future revenues that the Bahia Principe brand is expected to generate. Then, they estimate the royalty payments they would have to pay if they were licensing the brand from a third party. The present value of these hypothetical royalty payments represents the fair value of the Bahia Principe brand name. This valuation is crucial for accurately representing the acquired assets on The Standardx's balance sheet.

It's important to note that these fair value estimates are preliminary and subject to change during a measurement period of up to one year from the acquisition date. This means that The Standardx will continue to evaluate the contracts and assumptions used in the valuation, and adjustments may be made as more information becomes available. This ongoing evaluation reflects the inherent uncertainty in valuing intangible assets, especially in complex acquisitions like the Bahia Principe transaction. The relief from royalty method is also used to determine the revenues allocated to the license, and the revenues are recognized over time as the licensee derives value from access to Hyatt's brand name in other revenues on our consolidated statements of income.

For a prospective franchisee, understanding these valuation methods is essential because they impact The Standardx's financial statements and overall financial health. While franchisees are not directly involved in these calculations, the stability and accuracy of The Standardx's financial reporting can influence the company's ability to support its franchisees and invest in the brand's future growth. Therefore, it's prudent for potential franchisees to inquire about the outcomes of these valuations and any material changes that may occur during the measurement period.