NSO: Cyber weapon co sale to Verint in jeopardy?

Shalev Hulio and Omri Lavie  photo: Eyal Izhar
Shalev Hulio and Omri Lavie photo: Eyal Izhar

Verint was reportedly about to buy NSO at a $1 billion valuation.

Beyond the security and criminal aspects, the leaking of NSO's information is liable to cause the cancellation of a $1 billion exit. NSO, founded in 2010, got its name from the initials of its three founders: Niv Carmi (who has since left the company), CEO Shalev Hulio, and business development manager Omri Lavie. The company grew rapidly and the market estimates its current turnover at $200 million.

NSO's investors made their first exit in 2014, when US private equity fund Francisco Partners Management acquired 70% of NSO at a company value of $180 million. The agreement stipulated that the Ministry of Defense would have the right to veto contracts with customers. It was reported two months ago that NSO was on the way to another exit: Israeli-US company Verint Systems Inc. (Nasdaq: VRNT) had negotiated to acquire the company at a value of $1 billion - a 400% return for Francisco Partner in just four years. Verint provides business and security intelligence systems and services. The Nasdaq-listed company, managed by CEO Dan Bodner, has a $2.8 billion market cap.

Verint, which began as part of the Comverse group, is now an independent company with no controlling core. It has 5,000 employees worldwide, 1,000 of whom work in Israel. Verint made a $181 million net profit on $1.1 billion in revenue in the 2018 fiscal year. Verint's offices are located close to those of NSO in Herzliya Pituah.

Sources familiar with the deal say that the it is liable to collapse and may have already done so. It is unclear whether the difficulties in the deal are related to the leaking of information. The sources mention economic considerations and difficulties pertaining to supervision of security exports from Israel.

If the exit is called off, it will not be the first time that a deal for the sale of holdings in NSO failed to go through. In August 2017, investment fund Blackstone Group considered acquiring 40% of the Israeli company's shares but withdrew from the deal after "The New York Times" reported that Pegasus, the leaked tool, was being used to suppress opponents of the regime in Mexico. The company's value was then estimated at $1 billion, indicating that its growth may have come to a standstill.

Unfortunately for NSO, it has already had an information leak in the past. Internal documents leaked from the company to "The New York Times" in 2016. The newspaper reported many particulars from them, including NSO's price list and information about how it checked its customers. It turned out that the company was charging its customers $500,000 in installation fees plus payment according to the number of people on whom it was performing surveillance at $65,000 per person and 17% of the total price in maintenance fees. It is believed that the company has several dozen customers worldwide and that the number of people under surveillance from its system is no more than 400.

How does the Pegasus program make it possible to hack into mobile telephones and computers and spy on them? The process begins with the implanting of a miniature and unseen code on the target device. The code can be implanted in several ways: penetration through the cellular or WiFi network, sending SMS messages on subjects of interest to the person the company wants to track, and physically installing it on the device without its owner being aware of it. Once the code is implanted, the person becomes an open book to the operators: they can listen to his calls, read his messages, track his location and movements, identify his contacts, and read his surfing history and the files he sends or receives. In addition, the telephone becomes a listening and camera device for everything happening around it.

NSO was the subject of global exposure in 2016 when a human rights activist from the Persian Gulf was suspicious of a message he received inviting him to click on a link. An examination by experts revealed that the link led to an attempt to implant Pegasus. The experts said that it was the most sophisticated cyber attack device they had ever encountered and was unstoppable. Apple had to publish a security update after having boasted for a long time that is system was impenetrable.

Pegasus managed to penetrate the device using defensive vulnerabilities that were unknown to researchers. These vulnerabilities are in great demand in the community of hackers and cyber companies. There are even companies that have paid large sums for information on such vulnerabilities in the past. The more mobile phone and Internet companies improve their defense and encryption systems, the bigger the demand for NSO's tools, especially by security agencies finding it difficult to develop suitable break-in tools.

Published by Globes [online], Israel business news - www.globes-online.com - on July 5, 2018

© Copyright of Globes Publisher Itonut (1983) Ltd. 2018

Shalev Hulio and Omri Lavie  photo: Eyal Izhar
Shalev Hulio and Omri Lavie photo: Eyal Izhar
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