CRA International, Inc. (CRAI) – Poised for Growth Amidst Shifting M&A Landscape

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CRA International, Inc. (CRAI) – Poised for Growth Amidst Shifting M&A Landscape

In their Q1 2024 investor letter, Riverwater Partners’ Micro Opportunities Strategy featured a deep dive on CRA International, Inc. ($CRAI), a leading global consulting firm offering economic, financial, and strategic expertise to major law firms, corporations, accounting firms, and governments worldwide. Portfolio manager Nathan Fredrick and his team believe $CRAI is well-positioned for growth due to its strong market position, impressive employee retention rates, and anticipated revitalization in M&A activity.

Key Points:

  1. Antitrust and competition expertise
    • $CRAI’s cornerstone is the antitrust and competition domain, making up roughly 40% of sales.
    • With large M&A transactions facing increasing scrutiny from regulatory bodies, $CRAI’s expertise is becoming more valuable.
    • $CRAI played a significant role in the high-profile Microsoft/Activision Blizzard merger, ultimately helping secure approval.
  2. Impressive client base and employee retention
    • $CRAI collaborates with 82 of the Fortune 100 companies and 97 of the top 100 law firms.
    • The company boasts exceptional employee loyalty, with half of its senior staff maintaining tenure of more than five years, and a quarter surpassing ten years.
    • Strong retention rates are crucial in the consulting industry, directly influencing the firm’s capacity for revenue growth.
  3. Anticipated revitalization in M&A activity
    • Riverwater Partners anticipates a rebound in M&A activity, driven by declining treasury rates, accommodative financial conditions, and an expected easing cycle by the Federal Reserve.
    • Historical trends suggest that M&A transactions rarely decline for three consecutive years, further supporting the thesis.
    • Regardless of the election outcome, $CRAI is expected to benefit from either rigorous enforcement under a Democratic administration or increased overall M&A activity under a Republican one.
  4. Business momentum and financial performance
    • $CRAI’s lead flow growth has been growing double digits, and the company has started to convert its pipeline into sales.
    • Higher consultant utilization rates should drive higher margins and earnings.
    • Over the past six years, $CRAI has achieved an 8% CAGR in revenue and set a sales record in 2023, despite a subdued market environment.
  5. Shareholder-friendly capital allocation
    • $CRAI has demonstrated a strong commitment to shareholder value, aiming to distribute 50% of its cash flow from operations to investors.
    • Over the past decade, management has effectively reduced the shares outstanding by more than 30%.

Riverwater Partners’ investment thesis for $CRAI is built on several key pillars: exemplary leadership, a business and financial profile at an inflection point, and the potential for sustained growth over time as a compounder. The firm maintains regular communication with $CRAI’s management, further reinforcing their confidence in the company’s prospects.

In Q1 2024, CRA International emerged as the top contributor to the Micro Opportunities Strategy, driven by better-than-expected earnings and strong guidance for the year ahead. As $CRAI continues to capitalize on its growing pipeline and the anticipated resurgence in M&A activity, Riverwater Partners believes the company is poised for significant growth in the coming years.

Click here for the full investor letter.

Disclaimer: The information provided in this blog post is for informational and educational purposes only and does not constitute financial, investment, or other professional advice. The content is based on a third-party investor letter and does not represent an endorsement, recommendation, or solicitation to buy or sell any particular security or investment product mentioned.

Investing involves risk, including the potential loss of principal. Past performance is not indicative of future results. Investors should carefully consider their investment objectives, risk tolerance, and financial situation before making any investment decisions. It is strongly recommended to conduct thorough research and due diligence, and to consult with a qualified financial advisor or professional before making any investment decisions based on the information provided in this blog post or the referenced investor letter. The author of this blog post and the owners of this website are not responsible for any investment decisions made by readers and disclaim any liability for any actions taken based on the content presented herein.

Disclaimer: Third party content is provided for informational purposes only and should not be construed as an offer to sell or a solicitation of an offer to buy or sell any security. Third party content is not intended to serve as a recommendation to buy or sell any security and is not intended to serve as investment advice. Third party content creators are not affiliated with BBAE Holdings LLC, (“BBAE”) Redbridge Securities LLC (“Redbridge Securities”) or BBAE Advisors LLC (“BBAE Advisors”). All investments involve risk, including the possibility of total loss of principal. For additional important information, please click here.

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