Paragon’s $900M sale in limbo as Defense Ministry steps in
Paragon’s $900M sale in limbo as Defense Ministry steps in
“Contrary to reports, the Ministry of Defense did not approve the sale of Paragon. The Ministry is examining the sale procedure and its implications,” the Ministry said in a statement.
Three days after reports emerged about the sale of spyware startup Paragon, the Ministry of Defense issued an official statement on Thursday, denying that it approved the deal. The Ministry clarified that discussions with the Israeli Defense Export Controls Agency (DECA) addressed the sale only in general terms, and no formal request for approval was submitted. Consequently, the transaction has not been approved, as required under the Defense Export Control Law.
This public statement is unusual for the Ministry of Defense, which typically refrains from addressing such matters. Some in the cyber industry speculate that the announcement is connected to the identities of Paragon’s key shareholders. The company was founded in 2019 by a group of veterans from Unit 8200 and is led by Ehud Schneerson, a former commander of the unit who now serves as executive chairman and owns 10% of the company. Another notable shareholder is former Prime Minister Ehud Barak, who holds approximately 3.5% of Paragon's equity and serves as a director.
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Paragon executive chairman Ehud Schneerson (right) and
(צילומים: עמית שעל, קובי קואנקס)
On Monday, reports revealed that Paragon was sold to the American investment fund AE for $500 million in cash, with the deal’s value potentially rising to $900 million if growth and profitability milestones are met. Sources close to the company claimed that the agreement was signed following a six-month wait for what they believed was approval from the Ministry of Defense.
However, the Ministry’s statement directly challenges these assertions: “Contrary to reports, the Ministry of Defense did not approve the sale of Paragon. The Ministry is examining the sale procedure and its implications.
“Recently, there was a dialogue between Paragon and the Defense Export Controls Agency (DECA) regarding a potential change in the identity of the controlling owner. However, no official report on the matter was submitted to the department. The Defense Export Control Law states that any change in the controlling ownership of a company registered as a defense exporter requires a retrospective report to the Ministry of Defense. Such changes may affect the company’s continued registration as a defense exporter.
“In relation to the transfer of control of Paragon to an American controlling owner, it should be emphasized that the transfer of security and/or technological knowledge to foreign entities, including the controlling owners of companies, requires an appropriate license from DECA and is subject to compliance with the license conditions.
“It will also be emphasized that every defense export transaction with a foreign entity requires a specific export license. By virtue of the Defense Export Control Law, DECA is granted supervisory and enforcement powers to ensure compliance with the provisions of the law. In recent years, DECA has tightened its supervision of the export of offensive cyber systems, and each request undergoes rigorous examination. Additionally, DECA conducts regular inspections of defense exporters.
“We emphasize that all decisions by the Ministry of Defense are based solely on professional considerations. The Ministry has not received inquiries regarding the sale from any political or private entity.”
What’s next for the Paragon deal?
Ministry of Defense sources suggest this statement does not necessarily mean the Paragon deal will ultimately be blocked. However, they hinted that changes to the company's export license could occur as the deal is reviewed.
Paragon, established in 2019, developed a spyware tool called Graphite, which, according to foreign reports, can infiltrate end-user devices and extract data from encrypted apps such as WhatsApp, Telegram, and Signal. The company is already profitable, with annual revenues exceeding $100 million.
Paragon prides itself on working only with democratic governments—about ten countries in total—excluding even nations like Italy. This strict sales policy has earned it a place on the list of suppliers approved by the U.S. government, allowing it to position itself as an ethical alternative to competitors like NSO, Candiru, and Intelexa, which have been blacklisted by the Biden administration.
The buyer, American investment fund AE, specializes in infrastructure and security investments. Two years ago, AE acquired Red Lattice, an American cyber consulting company with strong ties to U.S. security agencies such as the FBI and NSA. However, Red Lattice is a manpower-intensive service provider with limited profitability and growth potential.
Through the acquisition of Paragon, AE aims to build a significant defense player in the U.S. and European markets. While AE does not plan to take the company public on Wall Street, the fund’s strategy involves selling its holdings in a few years to a major defense contractor like Lockheed Martin or General Dynamics.
