Embattled spyware maker NSO Group is taking drastic steps to pacify creditors holding around $400 million in debt as it waits out a worldwide political scandal that still threatens its survival.
(Bloomberg) — Embattled spyware maker NSO Group is taking drastic steps to pacify creditors holding around $400 million in debt as it waits out a worldwide political scandal that still threatens its survival.
Blacklisted in the US on accusations its Pegasus phone-hacking tool was used by foreign governments to spy on dissidents, the Israeli company has cut 15% of its workforce and raised prices by about 20% to stem a cash bleed that was expected to run into the tens of millions of dollars this year, according to a person with knowledge of the matter.
The change in strategy comes months after the collapse of a potential sale to defense contractor L3Harris Technologies Inc. Such a transaction would have included NSO’s various non-Pegasus products and likely involved either shutting down Pegasus or converting it into strictly defensive technology, a separate person with knowledge of the discussions said.
The new measures are buying NSO some breathing room after it breached certain terms on its debt agreements, said the people, who asked not to be identified when discussing the company’s private financial information.
The firm lost or cut ties with many of its clients after reports starting in 2018 that its software had been used against civilians, including an associate of murdered journalist Jamal Khashoggi. It lost dozens more this year after Israel’s Ministry of Defense tightened restrictions on cybersecurity tools, according to one of the people.
The Israeli administration also played a key role in NSO’s canceled sale to L3Harris. The sale, which would have valued NSO at around $700 million to $800 million, stalled because of disagreements over whether a new owner would gain full access to NSO’s underlying code — which Israel wanted to prevent on security grounds — the relocation of key personnel and other knowledge transfer issues, the person said.
Executives expect the company to generate revenue of between $150 million and $170 million this year, down from earlier estimates of around $200 million, the person said. That’s significantly below the approximately $250 million it recorded in 2018, just before private equity firm Novalpina Capital and management acquired it in a leveraged buyout.
In a plan shared with debt holders, management said it expects to break even this year and to generate enough cash to continue to pay interest and principal amortization on obligations next year, according to the person.
NSO remains out of compliance with some terms of its debt, as certain financial metrics fall outside of lender requirements. It hasn’t received an official forbearance agreement from the group, but given the nature of the assets, creditors’ ability to foreclose is limited.
Cash Bleed
NSO has disputed certain abuse allegations and said that it shuts down service when clients misuse it. It has repeatedly stated that its technology was not associated in any way with the murder of Jamal Khashoggi.
A spokesman for the company declined to comment for this story. Representatives for some of the creditors did not respond to requests for comment. A representative for L3Harris declined to comment.
The firm in August dismissed around 120 of its employees and hiked prices for customers in the countries where it is still allowed to operate, the person said. Meanwhile it continues to pursue a sale of some of its non-Pegasus products in an effort to raise cash.
Elections in Israel and the US are giving NSO executives hope that a sale process to a US entity could be revived, the people said. The new Israeli government could take a different approach to intelligence regulation while US midterm elections may change the composition of Congress and open up deal-making opportunities.
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