Software deals are hot.

The market for private equity firms buying technology firms is red-hot, and is expected to double this year from the $44 billion in deal value in 2006. And one of the hottest submarkets is purchases of software firms, many of them private.

Robert Smith, managing principal at Vista Equity Partners in San Francisco, reviewed a number of characteristics about the marketplace in a late April webcast sponsored by Softrax, a revenue recognition solutions provider. Smith, who helped found Vista in 2000, is a former M & A executive with Goldman, Sachs & Co.; the firm has $1 billion invested in the software space and recently closed a similar-sized fund to do more buyouts.

Smith enumerated some of things that make a software firm attractive to private equity: being in transaction- or information-intensive industries; having customers who understand the firm's value or rely on its automation capabilities; and the absence of irrational competitors that Smith says can "poison" the market.

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Moreover, he added, buyers want to see recurring revenues, the opportunity for value creation and the ability to track key market data or business information. Private equity, he argued, "can liberate the business from the hubris" of owners or founders.

Ken Bender, managing director of the Software Equity Group in San Diego, a specialist in mid-cap software firms, also spoke on the same webcast. Bender offered a statistical overview of the market that underscored a sense of dynamic growth.

Software deal totals are now being driven by megadeal buyouts, Bender noted, such as those done last year for First Data Corp. and Affiliated Computer Systems. Indeed, technology saw its share of all private equity deals triple from 4 percent in 2004 to 12 percent last year.

Private software companies are particularly attractive as "bolt-on" or "tuck-in" additions to platform software firms, Bender said, and slow-growth software firms have been a major beneficiary of this activity. Indeed, a "private equity premium" has developed for public software companies perceived to be potential PE targets, and there is a perceived "purchase or perish" dilemma that is further driving deal activity.