US private equity firm in talks to buy cyberattack co Paragon

Ehud Barak Photo: Eyal Izhar
Ehud Barak Photo: Eyal Izhar

Sources have told "Globes" that the Israeli company, in which Ehud Barak was a founding investor, has been given a valuation of over $1 billion.

A US private equity fund, which has a portfolio of security companies, is in talks to acquire control of Israeli cyberattack company Paragon Solutions. Based In Tel Aviv’s Discount Bank Tower, the company was founded five years ago by the former commander of the IDF 8200 intelligence unit Brig. Gen. (res.) Ehud Schneorson, and CEO Idan Nurick, CTO Igor Bogudlov, and CRO Liad Avraham - 8200 veterans - with the active involvement of former Prime Minister Ehud Barak as an investor, who it is estimated owns several percent in the company. The small stake will likely be worth many millions of dollars. Sources have told "Globes" that the negotiations reflect a company valuation for Paragon of over $1 billion and that the US fund will pay between $700 million and $1.1 billion for control of the company.

In recent days, concerns have been raised by the potential US buyer that the deal will require Israeli government approval, since Paragon operates under the supervision of the Ministry of Defense. If and when this happens, the concern is that the political level will not approve the deal due to the political rivalry with Barak. During talks for the sale of the Herzliya-based NSO Group, a rival cyberattack company, to US company L3, the deal was eventually scrutinized by government officials due to security considerations, but ultimately also raised concerns with the US administration. By law, the acquisition of a weapons or cyberattack company that sells products with the approval of the Defense Exports Control Agency (DECA) of the Ministry of Defense requires Ministry approval, and sometimes approval by the political echelon.

The structure of the Paragon deal would consist of equal components of a cash investment in the company, purchase of shares from existing shareholders, and payments on meeting milestones. For example, if a deal were to be signed for $900 million, $300 million would go in cash to the shareholders: founders Schneorson, Nurick, Bogudlov and Avraham, and investors including Barak, US venture capital fund Battery Ventures, Israeli fund Red Dot Capital Partners and veteran investor Yoram Oron. An additional $300 million would be invested in the company, and another $300 million after several years, depending on meeting pre-defined targets.

The US fund's takeover of Paragon would echo similar cyber company deals conducted in Israel in recent years. Private equity fund Francisco Partners formerly controlled NSO Group, and Insight Partners acquired control of Aramis, which is a cybersecurity company, which does not engage in attacks using Trojan horse software. Eran Gorev, a partner in Francisco Partners and former NSO CEO, invested in Paragon when the company was founded. However, Gorev will not benefit from an exit if the deal goes through, as he sold his shares years ago.

The sanctions that are shrinking Israel’s cyberattack sector

Paragon Solutions has kept a low profile, refuses to talk to the media and does not even have a website with details of the company’s activities. In the past, "Globes" has revealed that Paragon has developed Trojan horse software called Graphite that can extract data from encrypted messaging apps like WhatsApp, Facebook Messenger, Signal and Telegram. Unlike other Israeli cyberattack companies like NSO and Candiru, Paragon Solutions was founded with US investment for the outset in order to operate only in 34 countries defined as democratic in coordination with the security authorities and local legal systems with minimal use of invasion of privacy.

In contrast to NSO’s Pegasus software, Paragon’s software does not take pictures of the user with their phone's camera, and as far as is known, does not use the phone's microphone, but only records voice conversations in the chat applications. The company began selling its products in the US about two years ago and its customers include the US Drug Enforcement Administration (DEA) and security authorities in Singapore, where, according to the report on the Intelligence Online website, it has replaced technologies of Israeli companies blacklisted in the US.

If the company is sold to the US private equity fund, it will be another blow to Israel’s cyberattack industry, which suffers from US sanctions and significant sales restrictions designed to narrow operative options for Israeli companies. In the past, "Globes" has reported on the closure of Israeli companies Nemesis and Quadream, which operated in the cyberattack field. Many Israelis who worked for the prominent companies in this industry in Israel have chosen to leave the field, or emigrate to Europe or the United Arab Emirates and work for foreign cyberattack companies, such as Intellexa, founded by the former commander of the former commander of the IDF’s 81 unit Tal Dilian, and Dark Matter. These companies track terrorist suspects by obtaining important intelligence.

No response to this report from Paragon was forthcoming.

Published by Globes, Israel business news - - on June 13, 2024.

© Copyright of Globes Publisher Itonut (1983) Ltd., 2024.

Ehud Barak Photo: Eyal Izhar
Ehud Barak Photo: Eyal Izhar
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