EY valued NSO at $2.3 billion before emergency bailout

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EY, one of the Big Four accounting firms, assessed the clandestine Israeli spyware business NSO Group at $2.3 billion just months before it needed emergency finance and its capital was judged worthless.

Analysts at the firm's Luxembourg headquarters produced the appraisal of EY, which was more than double what NSO had valued two years earlier, in July last year.

In contrast, Berkeley Research Group (BRG), a consultancy representing NSO owners, privately called the company's equity "worthless" earlier this year.

EY's valuation was also far more than what an unknown possible buyer had given just weeks previously, when it agreed to acquire a minority position in a deal worth $1.6 billion, including $500 million in debt. According to a separate document reviewed by the FT, that amount was offered to NSO investors during a July 2021 meeting, but the transaction fell through.

EY's evaluation also came as news of NSO's Pegasus cyberweapon being used against activists and journalists spread throughout the world. At the same time, NSO's private equity owner was divided, and Meta, Facebook's parent company, was suing the spyware firm for breaching its secure messaging program WhatsApp.

In a suggested proposal to spin off NSO's core assets to L3Harris, a US defense contractor, investment bankers, and defense officials are reassessing the company's value. That transaction is intended to avoid a US Department of Commerce blacklist in November 2021, which has further harmed the company's reputation and operations.

Read more: US defense company in talks over buying NSO's Pegasus

EY classified NSO as a "market leader" in a 132-page study valuing NSO and the other firms controlled by private equity firm Novalpina Capital, despite the fact that its revenues had declined 17% in 2020 while its competitors had increased steadily.

Months later, BRO determined that the capital of NSO, formerly the "crown jewel of Israel's surveillance export business," was worthless.

In October 2021, BRG will make a $10 million emergency loan to NSO's sibling firm to assist with payroll.

The EY report arrived at a critical juncture. It was formally commissioned just two days before an international newspaper consortium raised concerns about how NSO clients, including Saudi Arabia, the United Arab Emirates, and other authoritarian regimes, used Pegasus to circumvent phone encryption and transform them into surveillance devices.

Days ago, NSO informed European legislators that at least five EU nations had used its software, claiming the company had canceled at least one contract with an EU member country due to misuse of its Pegasus monitoring software.