There were a lot of good reasons why Anheuser-Busch InBev (NYSE:BUD) should have bought Craft Brew Alliance (NASDAQ:BREW) back in August. Valuation was undoubtedly the reason why it didn't.

At a required $24.50-per-share price for the craft brewer under the terms of the "qualifying offer" agreement the two had in place, it would have cost the megabrewer around $500 million based upon the number of shares Craft Brew Alliance had outstanding. It was cheaper to pay the $20 million incentive fee required by the agreement for what was admittedly a diminished brand working on a turnaround.

Anheuser-Busch just agreed to purchase the remaining 69% of Craft Brew Alliance it didn't already own. Even including that original fee, at $321 million, it got a good deal on one of the fastest-growing craft beer brands, Kona Brewing.

The acquisition price also indicates that Boston Beer (NYSE:SAM) may have vastly overpaid for regional craft brewer Dogfish Head Brewing when it paid $300 million to acquire it earlier this year.

An industry in transition

The acquisitions by Anheuser-Busch and Boston Beer indicate that both think there is still some growth left in the U.S. craft beer market. Although growth has faded from the double-digit pace the industry and investors had become accustomed to, sales continue to expand. Industry production volumes were up 4% over the first six months of the year. However, the makeup of that sales growth is changing.

Rather than purchasing more mass-produced craft beers, drinkers have gone local. More often than not, they have been supporting local brewpubs and microbreweries recently. Dogfish Head has about a half dozen restaurants, alehouses, and tasting rooms connected to its brewery, while Craft Brew Alliance has five brewpubs. But that's about where the similarities end.

Bargain-basement shopping

Craft Brew Alliance is a much larger brewer than Dogfish Head. Whereas the latter brews around 300,000 barrels of beer a year, the former produces more than twice that amount, with 653,000 barrels produced in 2018. Craft beer industry trade group Brewers Association says that Craft Brew Alliance is the 13th largest brewer in the U.S., while Dogfish Head is the 22nd largest.

Yet Boston Beer paid a big premium for Dogfish Head, as the purchase price for the regional brewer equated to $1,000 per barrel. That may not be quite as inflated as the exorbitant $3,400 per barrel that Constellation Brands paid for Ballast Point Brewing in 2015, but Anheuser-Busch is buying Craft Brew Alliance for a price equivalent to just $493 a barrel. That's a bargain, and one that might not sit well with non-Anheuser-Busch-affiliated shareholders.

Through the first nine months of 2019, Boston Beer has already produced over 4 million barrels, meaning that Dogfish Head will make a negligible contribution to the brewer's efforts. It may give Boston Beer some extra capacity, but the company's main struggle has been in producing enough hard seltzer to meet demand. Sales of its flagship Samuel Adams beer brand are dwindling. The brewer actually produces more seltzer than it does beer these days.

The hangover to come

Anheuser-Busch got a good price for Craft Brew Alliance just by waiting a couple of months to make the purchase. But its bargain purchase of Craft Brew Alliance also means that Boston Beer likely overpaid for Dogfish Head.

Constellation Brands was forced to begin writing down the value of Ballast Point Brewing last year as the craft beer industry's slowdown continued. Having paid such an elevated price for its own craft brewer, it would not be surprising to see Boston Beer eventually have to take charges related to its acquisition.