U.S. Fund to Buy NSO and Its Smartphone-snooping Software

Israeli firm's Pegasus software enables governments to track smartphone users and remotely operate its camera.

Israeli firm NSO, which makes intelligence collection tools that enable governments to snoop on smartphones — or even take them over — will be bought out by an American-based private equity firm, with offices in London and the U.S., for between $120 million and $130 million. The deal is contingent on approval from Israel’s Defense Ministry.

NSO’s operations will remain in Israel if the deal is completed, as will its intellectual property rights. Two months ago TheMarker reported on advanced negotiations for the sale, and the buyers have conducted due diligence since then.

NSO, which declined to comment for this story, has developed a system to fight perceived security threats by tracking conversations and encrypted data from smartphones, tablets and other mobile devices. Because the technology is so security-sensitive, the sale requires the approval of the Defense Ministry.

The ministry said it does not comment on matters of defense exports.

The touchy subject of governmental spying has recently created rifts between the United States and some of its European allies in the wake of documents leaked by former National Security Agency contractor Edward Snowden.

Pegasus, the software program developed by Herzliya Pituah-based NSO, goes beyond making it easier for a government (or anyone else) to eavesdrop. Yes, the program can be used to record conversations and gain access to photos, text messages and websites viewed from a smartphone. But it can also remotely operate the device’s camera to surreptitiously film the user’s environment.

“Your smartphone today is the new walkie-talkie,” Omri Lavie, NSO’s co-founder told the Financial Times last year. “Most of your typical solutions for interception are inadequate, so a new tool had to be built.”

NSO’s revenues for 2013 are expected to reach $40 million, according to information obtained by TheMarker.

Cybersecurity is a burgeoning industry for Israel, with more than 10 other Israeli companies operating in related areas, some of which have earned annual revenues of tens of millions of dollars.

Other local cybersecurity companies include Nice Systems, Verint and Allot Communications. Worldwide, there are 230 companies in the data interception and tracking industry, according to Bloomberg.

Previous reports published last May said NSO had received an acquisition offer worth between $80 million and $130 million, including one from an unidentified American company for between $80 million and $100 million.

In 2012 the Mexican government reported it had signed a $20 million deal with NSO.

The closely held company, which employs 50 people, was founded in 2009 by Lavie, Shalev Hulio and Niv Carmi. The former chairman of the NSO board of directors is retired general Avigdor Ben-Gal, who headed Israel Aerospace Industries (then called Israel Aircraft Industries) in the 1990s.

A group of investors led by Adi Shalev, a partner in the Genesis Partners venture capital fund, hold a 30% stake.

A woman takes a 'selfie' with a smartphone at the mall.Credit: Bloomberg

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