Third Avenue Small-Cap Value Fund on CRA International, Inc.
Thesis
Third Avenue initiated CRA International after AI-related concerns materially pressured the valuation of the consulting firm. The team believes CRA's credibility and expertise in antitrust, litigation, regulation and large-scale M&A make its work difficult to replace because clients face substantial legal and transaction risk if analysis is inadequate. The importance of defining markets and quantifying competitive effects may actually increase as new technologies create more complex regulatory questions. Certain employee-compensation accounting also periodically depresses reported earnings without changing the underlying cash economics, contributing to what the Fund views as an attractive entry point. CRA has a strong balance sheet, a long-tenured CEO with a meaningful ownership stake and a history of reducing its share count. A further pickup in M&A activity could expose meaningful operating leverage and reward long-term shareholders.
“This backdrop has provided the Fund an opportunity to initiate a position after years of following the company from the sidelines.”
Key risks
- AI displaces more consulting work than the Fund expects
- Weak M&A activity reduces demand for antitrust and transaction consulting
- Reported earnings remain obscured by employee-compensation accounting