Squabbling threatens NSO sale

• Published date: 29 March 2022

Documents filed in recent months in the Tel Aviv District Court shed light on the shaky relationships between the three parties that ought to be working together for the benefit of the company's success: BRG, the consultancy company that is the controlling shareholder; the company's management led by cofounder and CEO Shalev Hulio; and the creditors who in the past lent $460 million to the private equity firm that controlled NSO, and which remains a millstone around the neck of NSO's controlling shareholder

The dispute, which was publicized due to the appointment of a trustee for NSO's drone company Convexum, has brought about a situation in which shareholders are not sharing the full financial data with BRG, the main shareholder, which in its turn makes any sale of NSO contingent on splitting it into parts. At the same time, the creditors fear for their debt and are warning about insolvency, while the value on the market of the debt continues to shrink. According to estimates, if in April 2019, they could have received $0.90 for every dollar that they were owed, today that amount has been cut by half.

The roots of the dispute are contained in a deal conducted in 2019 by Shalev Hulio, his partner Omrie Lavie and the British private equity firm Novalpina Capital when NSO sought to re-acquire the 70% stake held by Francisco Partners. The Israeli company was then at the peak of its success with 100 customers from India in the east to Mexico in the west.

The deal ultimately worked out valued NSO at more than $1 billion. While Shalev and NSO's management held a 30% stake in the company, Novalpina acquired 70% in a leveraged deal that included a direct investment of $290 million, $100 million in shares from Hulio and his people and $400 million in loans from various banks, which were deposited in the holding company controlling NSO.

But 2019 was also a turning point for NSO, as public opinion began to turn against the Israeli company. A lawsuit filed by Facebook against it for allegedly breaching WhatsApp and a series of media investigations, including by CBS's prime time 60 Minutes, raised moral questions about the service provided by NSO's spyware to dubious regimes in the Middle East.

The revelations about NSO deepened the division between the three partners in the British equity fund Novalpina, including disputes about the active role the fund was taking in its portfolio companies. In addition to the Israeli spyware company, these portfolio companies included an Eastern European casino chain called Olympic Entertainment Group. According to "The Financial Times," one of the partners in Novalpina...