Permira said a subsidiary had agreed to buy the UK-based unit, which it will turn into a new, rebranded company focused on developing video software for the pay-TV industry. It named video industry veteran Abe Peled as chairman of the business.

A source familiar with the deal said Permira was paying $1 billion for the unit, confirming a report in Israeli news website Calcalist.

Peled declined to comment on the price tag.

Peled, who has been advising Permira for the past six years, was CEO of the business, then called NDS, when it was sold by Permira and News Corp to Cisco in 2012.

The company's customers include Sky TV in the UK, AT&T's DirecTV, Vodafone in Germany and China's state satellite TV. However, it is operating in a highly competitive environment as companies like Netflix, Hulu, Apple Inc and Amazon.com Inc's prime video have all been investing heavily to strengthen content.

NDS, established in 1988 in Israel, is now based in the UK and has about 3,500 employees, including about 700 at its research and development centre in Israel.

Peled told Reuters by phone that the business is profitable but would not disclose details.

The transaction fits in well with Permira's strategy, he said, noting the private equity firm has multiple investments in pay-TV and technology.

"They see opportunity for creating value through innovation and growth," Peled said.

Streaming piracy is another problem for the industry and Peled noted that Israel's expertise in cybersecurity could help the company further develop solutions.

Peled said more than 50 percent of major pay-TV operators in the world are customers of the video software unit, with its software installed in over 300 million end-user devices.

Cisco senior vice president Yvette Kanouff said in a blog that Cisco's strategy is focused on areas such as networking, cloud, security and data.

Peled could not say what exit strategy Permira will choose for the business.

"You focus on the company doing well and creating value and when the time comes the exit strategy will present itself, whether it's an IPO or another private equity firm or a strategic acquisition," he said.

(Reporting by Tova Cohen; Editing by Susan Fenton)

By Tova Cohen