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Seeking a lifeboat, NSO Group in talks with US investors over possible sale

Spyware maker reportedly in negotiations with Integrity Partners for $300 million cash infusion as it seeks to turn around, remove US sanctions

An Israeli woman uses her phone in front of a building in Herzliya that housed the NSO Group intelligence firm, August 28, 2016. (Jack Guez/AFP/File)
An Israeli woman uses her phone in front of a building in Herzliya that housed the NSO Group intelligence firm, August 28, 2016. (Jack Guez/AFP/File)

Israeli cyber technology firm NSO Group, beleaguered by lawsuits and bad press over sales of its phone-hacking spyware, is reportedly in talks to sell off its assets to a US-based venture capital fund.

The Herzliya-based company, which was recently targeted by US sanctions and has seen its revenue sink amid a string of scandals around the world and at home, is in advanced negotiations with Integrity Partners, Haaretz reported this week.

NSO Group described the report as full of “inaccuracies and half truths,” but confirmed that it was in talks with US-based funds, without naming any.

“The company generates great interest with a few US-based funds, and the company is in talks with them all,” it said in a statement carried by Reuters Wednesday.

According to the Haaretz report Tuesday, an Integrity Partners subsidiary by the name of Integrity Labs would be created to take over the company and pump $300 million into transforming the firm from a veritable pariah back into a going concern.

The infusion would help NSO Group avoid defaulting on a debt it took on for a 2019 buyout, according to Bloomberg, which also reported on the sale talks.

NSO has faced mounting scrutiny over its flagship Pegasus software, which can seamlessly infiltrate a mobile phone and allow its operators to gain access to the device’s contents and location history. Confirmed targets have included Mexican and Saudi journalists, British attorneys, Palestinian human rights activists and Uganda-based US diplomats.

In November, the US Commerce Department blacklisted NSO, barring the company from using certain US technologies, saying its tools had been used to “conduct transnational repression.” The global tech giants Facebook and Apple have filed lawsuits against NSO over hacks against their products.

A logo adorns a wall on a branch of the Israeli NSO Group company, near the southern Israeli town of Sapir, August 24, 2021. (Sebastian Scheiner/AP)

NSO says it sells Pegasus only to governments for the purpose of fighting crime and terrorism. All sales require approval from Israel’s Defense Ministry. While it says it has safeguards in place to prevent abuse, NSO says it has no control over how a client uses the product and no access to the data they collect. It says it has terminated several contracts due to inappropriate use of Pegasus.

In recent days, the Israeli business daily Calcalist has published a series of reports alleging that Israeli police used Pegasus without proper approvals to keep tabs on Israeli targets, including political protesters. Police have denied abusing the product, but last week Israel’s attorney general opened an investigation into the matter.

The company was founded in 2014 with seed money from private equity firm Francisco Partners. In 2019, UK-based fund Novalpina Capital and NSO Group founders Omri Lavie and Shalev Hulio acquired a majority stake in NSO Group.

But over the summer, Novalpina’s investors brought in Berkeley Research Group to manage the fund and attempt to sell off NSO Group and other assets, according to the Financial Times.

On Tuesday, NSO Group chairman Asher Levy, who had been appointed by Novalpina, confirmed that he had stepped down at the start of January. He denied the move had anything to do with the NSO Group’s swirling legal and financial woes, but rather the takeover of BRG.

“I did what you are expected to do” when a new fund takes over management of a company, he said. He said he told them, “I’m not your guy. You may want to bring on your own guy. That’s the common practice.”

NSO Group CEO Shalev Hulio speaks with the Calcalist paper, April 20, 2020. (YouTube screenshot)

According to Bloomberg, NSO Group has been looking to be acquired by a company that could reposition it by using the technology behind Pegasus for cybersecurity rather than hacking.

The restructuring deal detailed by Haaretz would see the company focus on clients from the Five Eyes intelligence alliance comprising the US, UK, Australia, Canada and New Zealand. Its 37 current clients would be jettisoned.

Integrity Partners, which advertises itself as a mobility and infrastructure investment firm led by former US military officers, would attempt to remove the company from the US blacklist while continuing to develop Pegasus, according to Haaretz.

Integrity Partners did not respond to requests for comment.

The Associated Press contributed to this report.

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