A new player with a long and unusual history, Enstar Group Inc., may soon arrive on the bank merger scene.

Eight years ago Enstar was facing disaster. The company's 1980s junk bond-financed buying spree meant it simultaneously owned a 49% stake in a thrift, plus child care centers, shoe stores, and assorted other businesses. After the junk bond market collapsed in 1990, the former CEO was sentenced to prison for securities fraud, the company's stock was canceled, and liquidation seemed imminent.

Today, the Montgomery, Ala., company is headed by Nimrod T. Frazer, and it is debt-free.

The investment company is also investment-free, having sold its last holding, shares in First Union Corp., in August. But with a clean bill of health, Mr. Frazer's company is now prowling for acquisitions.

Some interesting people are helping it along.

One is a Goldman, Sachs & Co. partner, J. Christopher Flowers, a director who on Oct. 20 agreed to buy a 23% stake in Enstar and become its vice chairman after leaving the prestigious investment bank in November. Mr. Flowers' investment together with Enstar's existing resources means the company is sitting on about $80 million in cash.

Mr. Frazer, 68, is still pinching himself over landing one of Wall Street's most powerful deal makers.

"You can't believe what this means to us," Mr. Frazer said in an interview. "All of the sudden we are worth so much more than just the money we have."

Mr. Flowers, the chief of Goldman's bank mergers group, said buying a bank "is certainly something we'll look at a lot."

"We intend to make lots of money at whatever we do," he said.

Joining Montgomery, Ala.-based Enstar also puts Mr. Flowers back in his family's native territory. Flowers has been a prominent name in Alabama since the mid 19th century, linked to railroads and the lumber industry. Flowers Hall, the main building on the Huntingdon College campus in Montgomery, was built in 1909 and named after Mr. Flowers' great- grandfather.

Enstar's history is more complicated. The company is corporate heir to Kinder-Care Inc., which ran a chain of child care centers across the country, among other ventures. In 1989, Kinder-Care spun off the child care business, changed its name to Enstar Group, and under CEO Richard Grassgreen managed a host of businesses, including a thrift based in Miami called American Savings of Florida, retailers Shoe City and Bargain Town, and other holdings.

The company financed all these businesses with hundreds of millions in junk bonds from Drexel Burnham Lambert. But when junk bond king Michael Milken came under federal scrutiny, so did Mr. Grassgreen. He later pleaded guilty to two counts of securities fraud related to his dealings with Mr. Milken.

The Enstar board forced Mr. Grassgreen out before he pleaded and Mr. Frazer, a director, agreed to try to salvage the sinking ship.

In May 1991 the company filed for Chapter 11 bankruptcy. Mr. Frazer reorganized-in his words "threw assets overboard"-keeping only its stake in American Savings, which he recapitalized.

But by late 1992 Enstar had a negative net worth $120 million, and a bankruptcy judge ordered Mr. Frazer to sell American Savings by July 1, 1995. That was when he met Mr. Flowers.

Actually, Mr. Frazer first met him by phone. Investment bankers were parading into Enstar's offices with sales pitches for American Savings, but Mr. Flowers made his offer from London via phone.

"I told him, 'You sent a horrible message to us about how much attention you'll give the deal,'" Mr. Frazer recalled. Mr. Flowers, he said, asked for "another bite at the apple" and promised he would personally take charge of the sale.

Ultimately, Enstar beat the deadline. In June 1995 regulators approved American Savings' sale to First Union for $213 million in cash and stock.

Mr. Frazer was so impressed with Mr. Flowers that he invited him to join the Enstar board in 1996 and Mr. Flowers agreed, becoming Enstar's first new director since 1990.

Other directors include T. Whit Armstrong, chairman of Citizens Bank, Enterprise, Ala., and Jeffrey S. Halis, a New York hedge fund manager and former investment banker at Merrill Lynch & Co.

With firm finances and expertise on its board, Enstar's future is looking its best in more than a decade. The biggest issue now, Mr. Frazer said, is where to invest the company's money.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.