Founders and BRG battle over sale of NSO

NSO Group Photo: Shutterstock

A case in the Tel Aviv District court to appoint a trustee for NSO unit Convexum reveals details about the struggle to sell the spyware company to a US fund.

A dispute which reached the Tel Aviv District Court this morning reveals the struggle going on for the fate of Israeli cyberattack company NSO Group and its plans to be sold in the coming months for over $1 billion.

NSO Group's controlling shareholder Berkeley Research Group (BRG) filed a request with the court to appoint a temporary trustee for the drone company Convexum, which it acquired two years ago for $60 million, claiming that it has stopped injecting its funding into the company after negotiations between the two companies broke down. Judge Hagai Brenner approved the request and appointed Adv. Ori Gaon of the Levinbook law firm as Convexum's trustee.

Although Convexum was acquired by NSO, it operates as an independent startup in Tel Aviv's ToHa tower, some distance from NSO's headquarters in Herzliya. Convexum has 40 employees serving only its parent company's customers and allowing NSO to offer a more diverse portfolio of products to governments and private customers.

Convexum's platform enables the identification of nearby hostile drones and to breach its communications protocols and navigation system and take over control of it and force it to land, instead of having to shoot it down, endangering passersby should it fall on them.

Convexum's systems are operational in dozens of airports, railway stations, and sports stadiums in Europe, North America, Latin America and several countries in Asia.

In contrast to NSO's flagship and controversial Pegasus spyware, which is sold only to government security agencies, Convexum is sold to other authorities such as airport authorities. Convexum's platform is also sold as a complementary product to Pegasus to security and police forces.

BRG is a consultancy company that won a tender to manage European private equity firm Novalpina Capital, which holds 70% of NSO. It was also announced today that NSO chairman Asher Levy is stepping down. He told "Globes" that he was appointed to represent Novalpina and is now making way for BRG's appointment.

Last summer, close to the publication of the investigation into NSO by Amnesty and Forbidden Stories in cooperation with "The Washington Post" and "The Guardian" and other newspapers, the managing partners of Novalpina were in dispute with each other, and after they quit, BSR won the tender to take up the reins at NSO. But the dispute did not end there and the complicated control structure has allowed them to leverage their power in the struggle with NSO's management, in order to maximize their part in any sale of the entire company.

Although NSO announced that it was acquiring Convexum two years ago, the drone company has never been directly subject to its parent company. In practice, Convexum was controlled by Triangle owned by Novalpina (70%) and NSO's management and employees (30%).

Operating as an independent startup, Convexum has annual revenue of about $20 million and has received financing from various sources because it makes a loss. NSO initially transferred $20 million for employee salaries and then Convexum took a $10 million loan from BRG to continue operations.

BRG and NSO recently began talks about selling Convexum as a company jointly owned, to a company that would be fully owned by NSO's managers, as part of their desire to improve their position ahead of an overall sale.

But BRG and NSO could not come to an agreement. While NSO's managers wanted to pay $15 million for BRG's stake, BRG demanded $35 million. The negotiations dragged on and eventually BRG sought the liquidation of Convexum, probably to wrest it from the hands of NSO.

NSO's managers insist that they were prepared to continue financing Convexum themselves and proposed making it part of the parent company and taking on all its employees.

The struggle between NSO and the managers of the Novalpina fund is not taking place in a vacuum and is directly related to the confrontation between them about the fate of the entire cyberattack company. NSO has been in talks for several weeks with two American investment funds for the sale of the company, which have both submitted bids of between $1 billion and $1.2 billion. This is a similar amount for which the founders Shalev Hulio and Omri Lavie bought NSO from Francisco Partners three years ago.

NSO hopes that the sale will enable them to kill two birds with one stone. They hope to replace the current ownership structure of European and Israeli shareholders, with an American fund controlling 100% of the company, which might help it be taken off the US Department of Commerce blacklist. The sale to an American fund might also allow NSO to keep Pegasus and not have to relinquish its golden egg. NSO also hopes to get rid of the debt of its subsidiary Bitco, which it owns jointly with Novalpina.

But BRG is eager to maximize NSO's assets, in order to produce returns as the value of the company has slipped since they acquired control of it. In its court papers, BRG asks to separate cyber-defense company Convexum and Pegasus and claims that NSO's debts amount to $460 million, which are a millstone around the neck of Convexum. BRG claims that Hulio is trying to annex Convexum to his group of companies in order to maximize the acquisition of NSO in the coming months.

NSO's management told the court that it is actually Novalpina and the people controlling it, BRG, who are trying to grab assets to evade NSO Group's creditors, who are also the fund's creditors.

NSO's creditors are represented by the Wilkie Farr & Gallagher law firm, who have approached Novalpina and asked them to refrain from appointing a trustee for Convexum. "According to the claims of NSO's management, there are reasonable grounds to assume that these creditors are not interested in the appointment of a temporary trustee but in a rehabilitation solution for the overall companies."

In other words, NSO is seeking peace and quiet so that it can sell the overall structure of the companies in one piece to a US fund and save its own skin.

Published by Globes, Israel business news - en.globes.co.il - on January 25, 2022.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2022.

NSO Group Photo: Shutterstock
NSO Group Photo: Shutterstock
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