We examine whether the proprietary costs of economically linked peers influence focal firms’ merger and acquisition (M&A) decisions, which often involve extensive transfers of proprietary information across merging entities. Using data on supply chain relations, we find that a one-standard-deviation increase in customers’ proprietary cost concerns — proxied by the customers’ text-based product market similarity with rivals — reduces suppliers’ M&A likelihood with the rivals of their customers as well as with the suppliers to the rivals by 16.1%. The effect is more pronounced when the customers possess sensitive information and have greater bargaining power over their suppliers. These findings are consistent with suppliers internalizing the proprietary costs of their customers and avoiding M&As that can leak customers’ proprietary information, especially when the customers are economically important to the supplier. Using plausibly exogenous variation in the common ownership between customers and their rivals as a shock to customers’ proprietary cost concerns, we conclude that the negative link between customers’ proprietary costs and the supplier’s M&A activity is likely causal. These findings suggest that the proprietary costs of disclosure can spill over to the investment and strategic decisions of economically related firms.