Merger between Verint and Israeli cyber startup NSO reportedly off

NSO co-founders opposed the deal, Calcalist says; Francisco Partners, which controls NSO, was in charge of talks

Shoshanna Solomon is The Times of Israel's Startups and Business reporter

An Israeli woman uses her iPhone in front of the building housing the Israeli NSO group, on August 28, 2016, in Herzliya, near Tel Aviv. (AFP PHOTO / JACK GUEZ)
An Israeli woman uses her iPhone in front of the building housing the Israeli NSO group, on August 28, 2016, in Herzliya, near Tel Aviv. (AFP PHOTO / JACK GUEZ)

Talks for a $1 billion deal for a merger between US software company Verint Systems and Israeli cyber-surveillance company NSO Group are off, according to press reports.

A source close to the negotiations told Reuters that talks between the two firms have ended without a deal being reached, without disclosing why the negotiations failed.

Calcalist, the Hebrew financial website that first broke the story of the failed talks, said that continuous opposition by the co-founders of NSO, Omri Lavie and Shalev Hulio, to the deal and to some of its terms led to the crumbling of the talks. San-Francisco based private equity firm Francisco Partners is the controlling shareholder of NSO and was in charge of the negotiations for the sale.

An email sent to a media relations representative of Verint was not immediately replied to. A spokesman for NSO was not immediately available for comment.

The founders claimed that the deal was good for the shareholders of the company, but not good for the company or its managers. They also claimed that the two company cultures were not a good fit. Lavie and Hulio are essential for the deal to go through, because they hold most of the knowledge that is essential for the further development of the firm, Calcalist said.

In May, the Wall Street Journal first reported on talks for the deal, which envisaged Verint offering to pay Francisco Partners with cash and stock and assuming debt as part of the deal. Had the negotiations come to fruition, Francisco Partners would have become the largest shareholder in Verint.

Francisco Partners acquired NSO in 2014, reportedly for some $110 million to $130 million. In July last year, Calcalist reported that American multinational private equity firm the Blackstone Group was in advanced talks to buy 40 percent of NSO Group at a valuation of $1 billion.

Herzliya-based NSO, set up in 2009 by two alumni of the elite IDF intelligence unit 8200, helps governments spy on cellphones. Its Pegasus spyware is able to record conversations and gain access to photos, text messages and websites from a smartphone.The company made headlines after Pegasus reportedly took advantage of previously undisclosed weaknesses in Apple’s mobile operating system and was was used in a botched attempt to break into the iPhone of an Arab activist in the United Arab Emirates.

The spyware was also allegedly used to target Mexican journalists, lawyers and activists, a report by Citizen Lab at the University of Toronto said last year.

Earlier this month, a Netanya man was accused of endangering national security by stealing sensitive cyber technology from NSO and trying to sell it for tens of millions of dollars on the internet, the Justice Ministry said.

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