In a significant development in the world of cybersecurity, Paragon, an Israeli spyware maker that has largely kept a low profile in recent years, was acquired last week by American private equity giant AE Industrial Partners. According to reports from Israeli news outlets, the investment firm bought Paragon for $500 million, with the deal potentially reaching $900 million depending on the company’s growth.
The Deal and its Implications
Tech news website Calcalist reported that the upfront payment is $450 million, with 20% of this amount going to Paragon’s 400 employees. Additionally, 30% will be allocated to the five co-founders, while the remaining 50% will go to U.S. venture capital fund Battery Ventures and Israeli venture capital fund Red Dot.
In 2021, Forbes first revealed the existence of Paragon, which didn’t – and still doesn’t – have a website. The magazine reported that the company was founded by a group of former Israeli intelligence officers: Ehud Schneorson, former commander of Unit 8200, a renowned Israeli spy agency whose alumni often then work in the cybersecurity private sector, as well as CEO Idan Nurick, CTO Igor Bogudlov, and vice president of research Liad Avraham.
Paragon’s Spyware Product and Services
Forbes reported in 2021 that Paragon offered services to hack phones that allowed access to apps on a target’s phone, such as WhatsApp, Signal, Facebook Messenger, and Gmail. Paragon’s spyware product, called Graphite, has been likened to a competitor of Pegasus, made by NSO Group, and other similar spyware products.
In October, Wired reported that U.S. Immigration and Customs Enforcement had signed a one-year contract worth $2 million with Paragon to acquire a ‘fully configured proprietary solution,’ which included licenses, hardware, warranties, maintenance, and training. Last month, The New York Times cited a Paragon source who said that the ICE deal came after a vetting process in which Paragon reportedly demonstrated that it had controls in place to prevent customers in other countries from hacking U.S. residents.
The Acquisition and its Context
By acquiring Paragon, AE Industrial follows the example of other Western investment firms investing in Israeli spyware makers. In 2014, U.S. private equity firm Francisco Partners paid $130 million to acquire 70% of NSO Group’s shares, Calcalist reported at the time.
The same year, Francisco Partners was in contact with the now-defunct Italian spyware firm Hacking Team, according to leaked emails from the company, which were stolen and then published online by the notorious hacktivist Phineas Fisher.
In 2019, two of NSO’s founders, Shalev Hulio and Omri Lavie, bought back control of the company from Francisco Partners, signaling a shift in the ownership structure of the Israeli spyware maker.
The Acquisition and its Implications for Cybersecurity
The acquisition of Paragon by AE Industrial Partners raises several questions about the implications of this deal on the world of cybersecurity. With Paragon’s technology being used by governments and law enforcement agencies around the world, the acquisition could potentially lead to a change in the way these entities approach surveillance and intelligence gathering.
Moreover, the fact that Paragon has been linked to the development of Graphite, a spyware product that can compromise even the most secure devices, raises concerns about the potential for widespread hacking and data breaches.
Conclusion
The acquisition of Paragon by AE Industrial Partners is a significant development in the world of cybersecurity. As governments and law enforcement agencies continue to rely on surveillance and intelligence gathering tools like Graphite, the implications of this deal will only become clearer with time.
