> "If this was true, this PE strategy would eventually stop working as business buyers realize PE businesses aren't good to buy, so the PE firm can't sell them, and it becomes unprofitable to run the whole playbook."

Not necessarily. Following Clayton Christensen's theory, a business would acquire another company either for its Resources, its Processes or its Business Model.

In that theory, a business (which also has all these elements) cannot aim to acquire all three elements from outside and fold them into their own company (because it would lead to TWO companies, not ONE), they need to focus on one, maximum two of those aspects.

If a business buys a company from a PE before or close to their stated revenue/profit-goal, it's a company currently delivering on those metrics.

None of this however states that all three elements are in a condition for the company to continue to compete on its own. But: Some elements can create additional value if they complement the business of another company (which is in most cases the goal of a buyer)