After a string of blockbuster deals, 2005 closed out as one of the hottest years for the private equity market in recent memory, with investors snapping up a bevy of high-profile companies and posting nearly $200 billion in private equity-backed acquisitions. While many private equity firms remain awash with money, mounting competition, rising valuations, and increasing pressure from limited partners could make it more difficult to sustain the types of impressive returns that have made private equity a darling of institutional investors. This article looks at how some firms are embracing new strategies, underscores the importance of operational as well as financial due diligence to maximize value, and examines other important trends defining the current marketplace.