I was once told by a lawyer who knew a great deal more about the IRS than I do that the worst thing you can do to have them assess large values to your privately owned company is think about being acquired or going public, then not do that, and then die.
Later on I encountered other situations in which thinking about and preparing for an intended happy event resulted in awful consequences.
It is amazing how far along companies, especially small to mid size companies, will go along the road to merger or acquisition without first subjecting themselves to the kinds of due diligence examinations that a really good law firm and accounting firm will conduct in pre merger due diligence for the opposite party.
If you’re lucky, what turns up will only be embarrassing and humiliating. More often than one might wish to imagine, what turns up involves improprieties that cast aspersions on your company’s integrity and honesty, and criminal activity of the felonious sort.
Enron Corporation brought the introduction of heightened sensitivity (to put it mildly) about what must be done with “hot” information.
In the old days, if there were no pending litigation or government investigation regarding the hot information, you simply destroyed the evidence. Then, thirty some years ago, government enforcement policy was potentially less aggressive if you took the initiative to “fess up”. The first to confess got the best deal, especially if what was discovered was something like a price fixing conspiracy, a felony under the Sherman Antitrust Act. About the same time, highly placed corporate officers started invoking their Fifth Amendment right against self incrimination in those kinds of investigations. When they did that, government prosecutors would decide in many cases to arrange for them to obtain testimonial immunity from prosecution, which enabled them to be forced to testify because with immunity they had no more risk of incrimination.
Today, the discovery of hot information in the course of a due diligence examination can create a very delicate and painful dilemma, especially if it is discovered by somebody else.
There is only one way to avoid this. You have to subject yourself to an intensive forensic due diligence examination before anyone else does. Contemplation of mergers and acquisitions without doing that is a form of Russian Roulette. How you go about conducting that self examination, including who does it, seriously affects your options if sensitive information turns up.